E2open Parent Holdings, Inc.

Good afternoon, ladies and gentlemen, and welcome to the E2 Open Fiscal Second Quarter 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Adam Rogers.

The floor is yours. Good afternoon, everyone. At this time, I would like to welcome you all to the E2 Open Fiscal Second Quarter 2023 Earnings Conference Call. I am Adam Rogers, Head of Investor Relations here at E2Open. Today's call will include recorded comments from our Chief Executive Officer, Michael Farlacus, followed by our Chief Financial Officer, Marie Armstrong. And then we'll open the call for a live Q&A session. A replay of this call 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 fiscal third quarter and full year 23. 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-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'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 websites. And with that, we'll begin by turning the call over to our CEO, Michael Farlikas.

Thank you, Adam, and thank you all for taking the time to join our earnings call for the second quarter of fiscal 2023. First, I'd like to thank our nearly 4,000 team members for another great quarter. More than anything, we are a people business. Our software begins with our great team. Our clients derive immense value from our software because we have assembled what we believe are the world's foremost experts in the broader supply chain space. We had a strong second quarter and first half of the year, and we're excited to share our financial results with you. I'll start by highlighting our second quarter results and what we observe in the broader macro environment based on our network and the data we are seeing. I'll focus much of our call on Q2 commercial and operational highlights are critical milestones for us as we pursue our strategic objectives for 2023 and beyond. Marie will then cover the Q2 financial results in more detail. Over seven years ago, we set out to build a scaled compounding business that generates highly profitable growth focused on one of the largest enterprise software markets, solutions for the most complex supply chains in the world. We have and are building our business to generate increasing organic subscription growth over time with high margins and a high translation to cash based on operating efficiencies and low capital intensity. This profile again presents itself in our second quarter results, despite a challenging economic and geopolitical environment. In Q2, we generated $132 million in subscription revenue, which is our key indicator of long-term durable client relationships. Subscription revenue was 82% of our total revenue of $161 million and grew 11% organically on a constant currency basis. Our Q2 adjusted EBITDA was $48 million and represented a 30% EBITDA margin. Furthermore, we generated over $40 million of adjusted unlevered free cash flow. This is equal to 84% of our EBITDA and 25% of our revenue. Despite significant FX headwinds, investing in strategic efforts for our future growth and absorbing integration costs from our recent acquisition of logistics, we remain highly profitable, a testimony to the resilient business we have built and our unwavering focus on balancing growth and profitability that drive long-term shareholder returns. While foreign exchange fluctuations are a headwind to our reported results for us and many other global SaaS companies right now, Our constant currency results reflect the strong underlying fundamentals in our performance. That said, we continue to see in the data from our network a weakening economy. Specifically, we have observed that ocean bookings began to decline in the late spring and today are down about 30% from a year ago. In addition, we are now seeing the spot rates for U.S. over-the-road transportation drop. demonstrating increasing capacity in the North American trucking market, another indicator that economic activity is slowing. As we mentioned in our last call, we have carefully built and in many cases transitioned subscription revenue sources from being volume dependent to fixed in nature, meaning any volume impacts with our clients have a small impact on our revenue. The unusual and challenging economic conditions today are largely a result of three significant changes over the past six months. Number one, a rapid and dramatic shift in consumer behavior as the pandemic ended. Buying behaviors changed from durable goods consumption to travel and services-based consumption. There was a smaller multiplier effect when supplying a service as compared to supplying a hard good. As a result, economic activity is slowing. We saw the opposite of this in our data in the fall of 2020 as the COVID experience began. The war in Ukraine and the broader impact to the European economy. And lastly, central banks are rapidly unwinding the support they provided the economy prior to and during the pandemic period. Despite the macro challenges we are seeing, we are maintaining our guidance on a constant currency basis while taking prudent actions to invest in the future and absorbing a $13 million FX-related headwind to maintain our original guide on EBITDA and gross margin. We built this business to have multiple ways to win in all environments, and as such, we are able to meet our growth and margin expectations despite the elongation of sales cycles. A great example of multiple ways to win is the expansion of the announcement we made with Uber Freight on our last call. We are taking our first important step, albeit small, to create incremental value for the members of our network of over 400,000 connected parties. This creates an incremental revenue source for us. I'll provide more details in a few minutes when I share some Q2 highlights. E2Open's strategic objective is to continually generate highly profitable growth by becoming the standard bearer for the very large supply chain software market. e2Open is a network business, which was built to support how the largest brand owners actually make and ship goods. Today, they do that through using a network of service providers that need to be continually connected to very sophisticated applications that the brand owners use to make real-time decisions as autonomously as possible. Our network is made up of those very service providers, and our software are those sophisticated AI-enabled applications that our brand owners rely on every day. When we deploy our software, we become the primary system of record for our clients. And the software and data connections we provide through our network become the operational backbone for the world's largest companies, providing the connections to our client service providers and best-of-breed software to our clients. We become embedded in our clients' operations over time, which allows us to enjoy a 15-plus year relationship with our top 100 clients. Those relationships and the use of our platform grows over time. While we have done a nice job building a connected software platform built upon a 400,000-party network of service providers, we know that to accomplish our strategic objectives, we need to become more well-known to the broader market and build strategic relationships with the world's largest systems integrators. This cannot be done without work and investment and will not happen overnight. So next, I'll discuss technology. Our Q2 highlights describe how these milestones support our FY strategic goals and our broader plans to build our business. Marie will provide more details on our financial performance and also an update on our previously announced growth investment. Let me start with our investment this year to further reflect our growth rates in FY24 and FY25. The purpose for our strategic investment of $20 million this year is to accomplish two important goals and emerge as the connected supply chain platform. The first is to build our brand to become more well-known in our buying communities and increase our business development operation to identify more top-of-the-funnel opportunities. Second is to build strategic partnerships with the large systems integrators, recognizing the important role they play in the buying and delivery process for software like ours. Stated a different way, We have been able to build a $600 million-plus business, mid-30% EBITDAs, growing at double digits, without a well-known brand, and without the benefit of strategic support from the integrator community. We are incredibly excited to show the world what we can do as we build our brand, further scale our commercial organization, and add the world's largest system integrators as strategic partners. We began this work in earnest in our second quarter. We refreshed and positioned our brand as a leader in supply chain enterprise software, relaunched eatopen.com, invested in our sales force, and made significant gains in forming key partnerships critical to our future success. On the brand side, we are seeing our share of voice metrics improve sequentially, and our data indicates we are now number two in the supply chain technology market. Further, we are at or above target for four of the five milestones we have built to ensure we are on track, with this critical investment. We are investing in building an ecosystem of strategic relationships with global systems integrators such as KPMG and Accenture and others to increase the universe of certified people to deploy our solutions and also to drive more opportunities with increasing velocity and win rates. We have identified that partners have a significant role with approximately 25% of our in-play pipeline for the balance of this year. Of these partner-influenced opportunities, several large opportunities have been brought to us directly by them or progressed through the pipeline much faster than they otherwise would have. Although it's early, this is a key indicator that our progress is on track. By the end of the year, we will have trained and certified over 75 engineers within these integrators who will serve as a foundation for future train-the-trainer efforts. Our goal is to unlock the extraordinary influence and capacity these global integrators bring to our marketplaces. by investing in the training and certification of their engineers. These certified resources will see the development of the global services practices these global integrators have committed to building around our software. This investment is essential to allow our customers to access their own trusted advisors and professional services providers to complement our own world-class capabilities in the selection and deployment of our solutions. Moving to our platform of integrated best-of-breed supply chain applications, let me highlight one of the many go-lives of an end-to-end integrated solution for a large global retailer that describes the differentiated value having a very broad application platform and the foundation of a network creates. This client story describes exactly our strategy and is exactly how we scaled our business 10x in seven years while increasing growth rates and profitability along the way. This large global retailer selected ETA Open Global Logistics Orchestration Solution to use many elements of our platform to provide an end-to-end application with a focus on collaboration across their network of suppliers and service providers. The solution reduces shipping times, builds greater agility in their supply chain, and reduces overall supply chain costs. This solution was sold in the fourth quarter of our last fiscal year. and combined our global trade solution, our collaboration platform, and the then recently acquired BlueJay TMS solution. Wave 1 is now live, consisting of trade automation and our transportation management system, or TMS, with a focus on providing export visibility across their distribution network in the Gulf region. Combining global trade and our TMS into one integrated solution is very unique in the market. is one of the many strategic reasons we made the combination with BlueJ in the first place. We sold the solution one quarter after acquiring BlueJ and delivered the integrated solution within six months. Wave 2 adds supplier collaboration across the client's global network of over 2,000 suppliers, enabling greater collaboration and communication between our client and their suppliers. In the final wave, going live later this fiscal year, we are deploying E2Open's full logistics orchestration, providing an integrated import and export shipping experience with automated bookings, global trade, and transportation capabilities. I wanted to focus on this specific example as it perfectly describes how we provide differentiated value to our clients and how embedded our solutions become over time. This highlights the uniquely differentiated solution we offer when we integrate our combined companies quickly. and generate differentiated value for our clients by leveraging all aspects of our platform, of the various sophisticated applications, and the world's largest supply chain network. Next, I'd like to highlight a recent technical and commercial innovation. During our last time together, we mentioned a strategic partnership with Uber Freight, which is now live. Our relationship with Uber Freight creates an entirely new source of value for our brand owners, as well as Uber Freight as a network participant. This partnership allows Uber Freight, a digital freight broker, to use our combined technologies to automatically offer real-time spot market rates to all shippers that use our transportation management system. For reference, our TMS plans and executes over 60,000 truckloads per day, or roughly $70 million of transportation spend per day across over 200 clients in one multi-tenant system. Uber Freight can now extend their ability to secure additional revenue to our clients at their very point of decision-making 60,000 times per day, automatically with no personnel involved. This partnership increases Uber Freight's chance of capturing a portion of that $70 million market every day. For our brand owner clients, they get to access increased capacity and potentially lower freight rates automatically from one system. Our technical and commercial innovation creates real and substantial value for both the brand owner and the transformation provider. This innovation is an example of capturing the incremental value we saw in the Blue Jay combination. This is an initial, although small and important step to creating a two-sided network where both participants gain value from our network, paying eToOpen a small portion of the value that is created by leveraging our network and our applications. What is most exciting about this is that we were able to secure two additional large digital freight brokers as clients to use this technology as well, and several more in a pipeline. The scale of our multi-tenant TMS application allows us to form a unique marketplace where both buyer and seller of transportation services benefit greatly from this technology. Partnerships are also part of our growth strategy. And we continue that growth in Q2 by expanding our partnerships with Shipio, a leader in providing real-time, global, multimodal transportation visibility. This partnership unlocks additional value for our clients by combining an unprecedented level of transportation visibility into each open full range of supply chain planning and execution capabilities. All modes, all geographies. Beyond simply alerting shippers to a transportation delay, the platform now enables users to peer inside and understand the specific goods that are moved, how transportation performance will impact their customer experience, and most importantly, proactively take the best action. This level of control at a global scale enables enterprises to improve efficiency, reduce waste, and operate more sustainably across even the most complex global supply chains. I would like to touch on something that is extremely important to me personally. Our mission statement refers to our desire to lower the cost of everyday living by reducing unnecessary costs in the supply chain and to improve our environment by leveraging our software to reduce the carbon required to make and bring goods to market. Yesterday, we released our annual Environmental, Social, and Governance report, ESG. This is an ongoing journey for us. Anita Open is proud to make tremendous progress in this area. Not only are we evaluating our own ESG commitment as a company, but we add significant leverage to help the global effort by delivering solutions to help our clients' ESG efforts. specifically in reducing their carbon footprint. Monitoring and managing activities outside the four walls of an enterprise is key to managing ESG. You'll see incremental steps in our platform's quarterly releases in our aim to unify the connected supply chain to make positive impacts for people and our planet, then improve planning, reduce waste, and GHG emissions, optimize inventory, protect labor and human rights in the supply chain, and facilitate compliance and reporting. Our recent release allows our clients to use a templatized approach to gather ESG data from their suppliers. The result is a more accurate view of supplier-specific ESG risks, low-score trigger third-party audits, strengthening due diligence, enabling data-driven reporting and risk management. As I said, our ESG report and our preliminary strategy were released yesterday, and I encourage you all to visit our website to check it out. Finally, EDA Open continues to gain third-party recognition from industry analysts. This includes being named as a leader in five of the five IDC MarketScape vendor assessments for supply chain planning, including the overall worldwide holistic supply chain planning MarketScape. We were also recognized as a leader in the 2022 Nucleus Control Tower Value Matrix. In summary, we have been very productive and very busy in our second quarter. building for the future while also producing strong operational and financial results. We are excited about our multiple growth opportunities in front of us, and we remain focused on executing our strategy. I'll now turn it over to Marie to go into more detail about our financial performance for Q2 and the rest of the year.