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spk10: Greetings. Welcome to the E2 Open Fiscal First Quarter 2025 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 will now turn the conference over to your host, Dusty Buell. You may begin.
spk03: Good afternoon, everyone. At this time, I would like to welcome you all to the E2 Open Fiscal First Quarter 2025 Earnings Conference Call. I am Dusty Buell, Head of Investor Relations here at E2 Open. Today's call will include recorded comments from our Chief Executive Officer, Andrew Appel, our Chief Commercial Officer, Greg Randolph, and our Chief Financial Officer, Marie Armstrong. Following those comments, we'll open the call for a live Q&A session. A replay and transcript of this call will be available on the company's Investor Relations website at investors.e2open.com. Information to access this 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 2025. These forward-looking statements are subject to known and unknown risks and uncertainties. C2 Open cautions that these statements are not guarantees of future performance. We encourage you to review our most recent reports, including our 10-K 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-gap-to-gap 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.e2open.com. And with that, we'll begin by turning the call over to our CEO, Andrew Appel.
spk06: Thank you, Dusty, and thanks to everyone for joining today's call. I'll begin with my thoughts on our key accomplishments during the first quarter and what they mean for e2open moving forward. I will then ask Greg to update you on our commercial highlights. And finally, Marie will review our fiscal first quarter results and provide some commentary on our FY25Q2 and our full year outlook. Then we will open up the call for questions. I'd like to reiterate the key factors that make me so optimistic about E2Open's potential for strong, sustainable growth. First, for companies to achieve predictable outcomes in today's volatile global environment, they need visibility into all aspects of their supply chains and the ability to orchestrate a complex web of external supply-related activities and relationships. E2 opens comprehensive software management platform combining networks, data, and applications is purpose-built for today's most complex supply chain challenges. Our network-centric, AI-enabled suite of applications provides a unified set of digital tools for managing and optimizing the end-to-end supply chain from production to delivery. Our highly differentiated products with years of proven functionality make Eat2Open unique in our industry. And this positions us very well to capture a very attractive and fast-growing market opportunity. And second, we enjoy the distinction of having as our clients many of the world's largest and best-known companies. And our software is deeply embedded across these clients' value chains and provides them with enduring, measurable value. Our close partnership with these clients not only validates the mission-critical functionality of our platform, it also provides a large, readily accessible source of white space growth opportunities. If we consistently delight our clients and ensure they receive full value from our relationship and products, then we will enjoy a strong tailwind of cross-sell growth as clients digitize more and more of their supply chain activities. During Q1 FY25, E2 Open continued to execute our plan to reposition the company for sustainable organic growth by emphasizing client centricity, selling differentiated solutions, delivering those solutions in ways that exceed client expectations, and ensuring clients subsequently receive the distinctive value they expect when they purchase the products. I'm pleased to share that we've made notable progress against these objectives that are critical for the company's future growth. And while our Q1 revenue results do not yet reflect this material change in focus, During the quarter, we saw solid evidence that a well-managed, proactive approach to delighting clients will bring E2Open back to solid growth in short order. As I have noted previously, one of my top priorities as CEO has been to improve E2Open's client satisfaction and delivery in order to restore our retention metrics to the high levels that the company enjoyed prior to 2024. I have previously described the successful work we've done around diagnosing the root causes of churn, as well as the discipline internal management cadence we've put in place around renewals and retention. We have implemented repeatable processes to manage every material renewal on an account by account basis, We have introduced new tools such as a risk prediction algorithm to monitor the application's performance and client usage, among other things, which provides us real-time insights into the key indicators of client satisfaction and retention risk. And supporting this management process is a fundamentally new corporate-wide mindset. We are now approaching every renewal as an opportunity to strengthen and expand our important client relationships by finding new ways to work together and new sources of deliverable value for the client. I am pleased to report that in Q1, we executed this client-centric account-by-account approach very consistently and effectively. Overall, we came in ahead of our internal ARR retention targets for the quarter by a meaningful margin and experienced no significant downside surprises. This strong performance included securing several renewals with a number of strategic accounts and laying the foundation for significant year-over-year improvement with our long tail of small clients. Moreover, looking forward, we have clear line of sight into achieving a material sequential improvement in Q2 churn followed by even larger reductions in the second half of the year and into next year. I am confident in this forward-looking view because we have reviewed every renewal over a specific ARR threshold scheduled through the first half of FY26 and individually assessed and scored the renewal risk of each client. For any piece of business assessed to be at risk at all, we are actively engaged with the client on mutually beneficial ways to retain them. This highly disciplined evaluation process is now part of E2Open's standard operating cadence, as we will regularly review a rolling forward schedule of 24 months of renewals to ensure client satisfaction and early renewals. And while we still have work to do to fully execute on our FY25 churn reduction targets, we have turned the corner on our retention challenges. And I am proud of the efforts of so many E2Open colleagues that made this possible. Based on these positive Q1 developments, I am confident that the first quarter represented our peak quarterly level of churn and that by the beginning of next fiscal year, we will return to a baseline run rate that is much more in line with E2 Open's normal historical levels. Given the negative impact that this issue has had on our financial performance over the last six quarters, Putting it behind us is a major milestone and will provide tailwind for revenue growth as we move forward. Moreover, now that we have a disciplined approach to retention management in place and our metrics are moving in the right direction, I look forward to allocating more of my time to growth-related activities such as strategic client development, pipeline expansion, and bookings. I also want to provide a few comments on some other aspects of our Q1 performance, which Greg and Marie will discuss in more detail. Our subscription revenue results for the quarter were relatively solid, but delays in the timing of deal closures prevented us from delivering upside. Although we entered the quarter with a significant pipeline of late-stage deals scheduled for Q1 close, Some large deals ended up slipping out of the quarter due to delays in client-specific decision and approval processes. We have already made significant progress in June in closing those delayed deals. So from a year-to-date bookings perspective, we are quickly getting caught up with our internal plan and remain on track for our full-year targets. While our quarterly results can sometimes vary due to deal timing, the client-centric changes we have made at E2Open are gaining traction and yielding positive results. Having already largely made up for the timing shortfalls we experienced in Q1, we are well-positioned to accelerate bookings as we move through the year and finish FY25 at a material higher growth rate, and as importantly, with a much more strongly committed base of clients. In our professional services business, after entering Q1 with a healthy backlog, we chose to accelerate some unbilled professional services work into the quarter. Although this required us to redirect some resources away from working through existing backlog, which delayed some PS revenue into the future, we expect PS revenues to normalize in subsequent quarters as we rebalance PS activity toward billable work. Moreover, and importantly, these Q1 client investments were the right trade-off to make. Under our new leadership, our PS organization is now focused on delivering improvements in client satisfaction and value realization that are ultimately key to turning our clients into strong net promoters of E2Open and generating sustainable growth. And we know that clients with high satisfaction are the best prospects for us to sell in new high-value solutions. The best reference for a client is the client itself. With our best-in-class portfolio of solutions and high interoperability, I am confident the investments we make now to ensure clients get value from their existing solutions will pay out in dividends as they look for future evolutions of their supply chain software. Before I turn the call over to Greg, I would like to make two additional comments. First, I want to express my sincere thanks to all of my E2Open colleagues for their many contributions to putting our company back on a growth path, and also to our management team for all their work and support on the strategic review, while also running our great business and building a strong future for the company. And second, I want to comment on the strategic review that E2Open announced in March. The review is progressing, and while we will not be taking questions on the review today, we are fully engaged in the process and anticipate its completion in the near future. We look forward to sharing the outcome of the review with our customers, employees, and shareholders as soon as appropriate. With that, I will now ask Greg to provide an update on our go-to-market activities.
spk11: Thank you, Andrew. Since I joined E2 Open 11 months ago, our commercial organization has been working hard to lay the foundation for generating strong, sustainable growth. We have made tangible progress on multiple fronts. We have brought experienced leaders into the company to lead our most critical commercial functions. We are managing all aspects of our growth strategy from front end pipeline development to software implementations with a disciplined operational cadence. After moving E2Open's marketing function into the commercial organization and scrubbing our sales pipeline of deals not aligned with our core value proposition, our marketing and sales teams are now fully integrated and we are quickly rebuilding our pipeline of high quality opportunities. And most importantly, we have realigned our organizational culture to one that values above all else, delighting our clients and building long-term mutually beneficial relationships. In sum, we are building our growth capabilities for the long term, not just for the immediate quarter. While we still have work to do, I'm very encouraged by the momentum we have generated in the commercial organization. We now have the basic tools we need to be a high-performing sales organization and take full advantage of the attractive growth market that E2Open occupies. As we did during the second half of FY24, so far at FY25, we are demonstrating our strength in the marketplace and the distinct value that our solutions can provide for clients by winning important new logo and cross-sell opportunities with blue-chip customers. clients continue to place their trust in us to solve their most complex supply chain challenges. We are competing successfully across our broad portfolio, including recent seven-figure ARR wins in the increasingly strategic areas of global trade management and transportation management. With regulatory complexity, sanctions risk, and transportation costs continuing to rise, we are seeing robust demand for software applications that automate customs documentation, reduce compliance risks, and provide flexibility to respond to shipping disruptions in real time. We are also having success in the areas of planning and supplier collaboration, where we have launched innovative new functionality and products such as our supply network discovery solution to respond to growing customer needs for supplier mapping and traceability. I fully expect these demand trends to be resilient over the long term and to provide a tailwind for our plan to grow bookings and ARR across our broad product portfolio in FY25 and beyond. Specifically in Q1, while demand for E2 Open Solutions was healthy, a material number of large deals pushed out of the quarter as clients extended their decision timeframes. As a result, despite a strong pipeline heading into the quarter, our Q1 subscription bookings came in lighter than planned and we received less of an in-quarter revenue benefit from new deals than we expected. I'm pleased to say that just over a month into Q2, we have already closed nearly half of these delayed deals. We had a very productive June and we are well positioned to meet our full year targets. On the professional services side of our business, our new leader, Mark Nordic, has immersed himself in the fundamentals of that group and is keenly focused on better integrating its operations and culture with the needs of our clients. Mark understands that flawless implementations, client satisfaction, and cross-sell success are self-reinforcing benefits and are key to unlocking a flywheel of organic growth for E2Open. During Mark's first two months on the job, We identified high-impact, positive ROI opportunities to use our professional services resources to invest in key client relationships and improve client value realization. Rather than address these opportunities more radibly across FY25, we decided to accelerate these client investments into Q1 to capture the clear growth upside from doing so. The client investments that we made in Q1 have already delivered tangible benefits, including securing early renewals of large, important relationships, taking key retention risks off the table, and improving our positioning with key clients for near-term cross-sell opportunities. As just one example of these growth-oriented investments, we secured the renewal of a highly strategic technology client a multi-year $30 million total contract value subscription relationship by co-investing in an upgrade of the client's legacy platform during Q1. While investing in our clients is clearly the right decision from a future growth perspective, accelerating these investments into the first quarter required us to reallocate PS resources away from billable work and delay the execution of our existing PS backlogs. both of which impacted PS revenue and gross margin in the quarter. As we move through the year, the client investment that we executed in Q1 should position us well to gain subscription and PS bookings momentum in the second half. And importantly, while we will do whatever it takes to delight our clients and turn them into positive net promoters of E2 Open, we are confident that the volume of client investment work will decline materially across FY25 and that the impact of PS revenue and margin that we experienced in Q1 will normalize. In conclusion, E2Open's commercial organization is now in full execution mode with a clear mandate to provide value to our clients and put the company back on a sustainable growth path as quickly as possible. In Q1, we encountered some temporary bookings delays, but we are quickly closing the gap in Q2 and remain in good shape to meet our full year plan. And while we have a detailed commercial roadmap for the year, we are taking a flexible approach. And during Q1, we took the opportunity to accelerate high ROI investments in client satisfaction to support future growth. As of today, we are on track to accelerate bookings and drive continued churn improvements as we move through FY25, which together should position us for a stronger FY26. At this time, I'll turn the call over to Marie for discussion of our financial results and guidance.
spk01: Thank you, Greg. Today, I will review our fiscal first quarter results and comment on our Q2 and full year guidance. Subscription revenue in the fiscal first quarter 2025 was $131.4 million, a decline of 2.6% year-over-year, but at the midpoint of our $130 to $133 million guidance. Although we closed many important deals during Q1, as Greg mentioned, revenue upside was limited by some large deal delays, where customers took longer to make decisions about new business. We have already closed several of the slip deals in Q2. In addition, during the first quarter, we proactively managed renewals and were able to complete the quarter ahead of our internal targets for retention. As we continue to execute our growth plan, we still expect our bookings momentum to accelerate and our retention metrics to improve further as we move through the fiscal year with the fastest improvement in both in the second half. Professional services and other revenue in the fiscal first quarter was $19.8 million, reflecting a year-over-year decline of 21.6%. As Andrew and Greg mentioned, our weekend PS revenues were driven by the reallocation of resources to client investments during the quarter, which prioritized non-billable over billable work. By doing so, we invested in delighting our customers, ensuring high-quality implementation, and supporting renewals by bringing forward the investments needed to ensure projects are on time, on budget, and exceed client expectations. We will continue to focus on client satisfaction and invest in our clients as needed, but we anticipate that the mix of billable and non-billable work will normalize going forward and that our PS revenue for FY25 will be roughly flat to prior year. Our PS business has a healthy backlog of work to support revenue generation through the remainder of the fiscal year. And as we continue to close deals that were delayed from Q1, our services business should pick up additional attached backlog. Total revenue for the fiscal first quarter was $151.2 million, a decline of 5.6% over the prior year quarter. Turning to gross profits, in the fiscal first quarter of 2025, our non-GAAP gross profit was 102.6 million, reflecting a 7.1% decrease year-over-year. Non-GAAP gross margin was 67.8% in the first quarter compared to 69.0% in the prior year quarter. The slight decline in gross margin was mainly due to the acceleration of professional services unbilled hours into Q1, which impacted PS gross margin and flowed through to a smaller extent on the consolidated margin line. Turning to EBITDA, our first quarter adjusted EBITDA was $50.7 million, a 33.6% margin compared to $53.8 million and a similar 33.6% margin in the prior year quarter. Adjusted EBITDA during the quarter was down year-over-year due to lower revenues, as well as the client investments mentioned earlier, partially offset by spend deficiencies. During Q1, despite temporarily softer revenues, our adjusted EBITDA margins remained strong and consistent with prior year. This consistent EBITDA margin performance reflects our continued disciplined cost management approach and keen focus on driving back office efficiencies to reinvest in our clients, our go-to-market motion, and our products. Our non-GAAP G&A expenses in Q1 were down 11% year-over-year, due to efficiencies across our HR, finance, and facilities departments, mainly driven by lower headcount spend, as we have consolidated teams and optimized management layers across corporate support functions. We also continued to streamline our global real estate and facilities footprint. We expect to find additional ways to reduce G&A costs going forward, driving automation and efficiencies across our finance, accounting, legal, and HR processes. Our non-GAAP sales and marketing spending Q1 was flat year over year. However, having consolidated our marketing organization into our commercial team, we are significantly reducing marketing overhead and reinvesting those dollars in our go-to-market organization. an area where we have brought in several new leaders and built sales capacity. And finally, we're continuing to invest in product development, as evidenced by recent announcements of product launches and functionality additions. Our non-GAAP R&D spend is down year over year as a result of process changes and successful offshoring strategy that has allowed us to find additional savings while holding R&D headcount nearly flat and allowing continued investments in our best-in-class products. Now turning to cash flow. We generated 39.1 million of adjusted operating cash flow in Q1, which is higher both sequentially and year over year. This positive result reflects our continued strong focus on cash generation as a key performance metric and our focused efforts to optimize several cash levers. including our accounts receivable collections processes. Looking ahead, I would note that Q2 is typically our lowest cash generation quarter of the year due to various seasonal factors, including payment of our annual cash bonus during June. We still continue to expect strong cash flow performance for the full year. We ended Q1 with $160.2 million of cash and cash equivalents, an increase of $40.7 million year over year, and 25.7 million sequentially. Continued strong cash performance is further evidence of the strength of our underlying business model and is an important indicator of our financial strength and flexibility. This completes my remarks on our fiscal Q1 financial results. At this point, I'd like to turn to our second fiscal quarter and full year guidance discussion. For the second fiscal quarter of FY25, we expect subscription revenue in the range of 129 to 132 million, representing a decline of 4.3 to 2.0% as compared to the prior year fiscal second quarter. Our Q2 subscription revenue guidance incorporates the impact of Q1 slip deals that closed or are expected to close after the beginning of Q2. As discussed earlier, our full year bookings outlook has not changed. as we expect to close these deals within the fiscal year. But the timing delays are having a modest impact on our revenue outlook for the first half. Regarding FY25 guidance, we are reaffirming our full year guidance provided on April 29, 2024. We still expect FY25 subscription revenue in the range of 532 to 542 million. In terms of key performance drivers, we still expect Booking's momentum to build as we move through FY25, with the revenue impact becoming stronger in the second half of the year. We still expect FY25 total revenue to be within the range of $630 to $645 million. We still expect FY25 gross profit margin to be within the range of 68 to 70%. We also still expect FY25 adjusted EBITDA to be within the range of $215 to $225 million, which represents an adjusted EBITDA margin of 34 to 35% for FY25. These strong profitability metrics are consistent with what we have achieved in FY24 and reflect our commitment to maintain profitability as we reaccelerate growth. We are also reaffirming the commentary we gave on last quarter's earnings call around FY25 cash flow. We still expect adjusting operating cash flow to grow in FY25 as compared to FY24, and the following cash flow drivers remain the same as we discussed last quarter. We expect CapEx to be approximately 5% of revenue in FY25, consistent with prior year. We plan to drive working capital improvements and expect FY25 working capital to be a modest use of cash. Cash interest expense net of interest income and the impact of our interest rate callers is expected to be in the range of $90 to $95 million, based on the same assumptions that we described last quarter. We expect non-recurring cash costs in FY25 to decline significantly as compared to prior year. Finally, based on our guidance for FY25 adjusted EBITDA as well as our outlook for cash generation during the fiscal year, we expect year-end FY25 net leverage to be below four times. In conclusion, during the fiscal first quarter, we made continued progress in our work to put E2Open back on a sustainable growth path. Most notably, as Andrew mentioned, we believe that in Q1, we successfully turned the corner on the retention issues that have hurt our recent revenue growth. While revenue upside was limited in Q1 due to the delayed timing of several large subscription deals, as well as the acceleration of non-billable PS investments in client relationships, we're still on track to meet our full-year guidance targets and well-positioned to accelerate bookings and revenue growth as we move through FY25. As we do so, we expect to maintain strong adjusted EBITDA margins and cash flow, again demonstrating the attractive fundamentals of our underlying business model. That concludes our prepared remarks. I want to thank everyone for joining us today, and we look forward to continuing our dialogue as we move through the fiscal year. Operator, please open the line and begin the Q&A session.
spk10: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please note, we will be taking one question and one follow-up per analyst. One moment, please, while we poll for questions. Our first question comes from Adam Hotchkiss with Goldman Sachs. Please proceed.
spk09: Great. Thanks so much for taking the question. I'm curious, just to start, if you can give more specifics on what gives you the confidence on term improvement throughout the year. Is this just a result of you going out and getting soft commitments well ahead of renewals or just scrubbing and engaging with your pipeline more aggressively than you've done in the past? Just in any specific, someone could give you confidence on the sort of improvement and acceleration there relative to what you printed in the first quarter would be useful.
spk06: Yeah. Hey, Adam. This is Andrew. How are you? Doing well, thank you, Andrew. So, what gives us confidence is we have reviewed every account over a pretty low threshold, both with the client teams and client managers, as well as, in many cases, the clients. And these are, you know, well over, whatever, 400 plus accounts. that have been assessed individually in a series of workshops where we have commitments. And so that's our new process for managing all renewals is to do them one at a time effectively, account by account renewals and where there's an issue. And in conjunction with that, we have use statistics, we have other measures of operational effectiveness. And so we have leading indicators all over the place. And we used the evaluation of all the churn from 22 and 23, where we looked at 182 contracts that had churn to really understand what were the drivers of churn. And then that led us to a very proactive model with each and every accounting. So we know what's coming up for renewal, and we know Basically, for example, the rule is if you are not 95% or more confident that something's going to renew it at or above the price, then it goes on the list, and we have deep discussions about where we are. We look at all the analytics, and then we do customer contacts outside of the account teams if necessary.
spk09: Okay, thanks, Andrew. That was incredibly helpful. And then I just wanted a quick follow-up on the resource reallocation away from professional services. Could you just maybe talk about the puts and takes and what those were around that decision, just pushing out some of those PS backlogs even more, have an offsetting impact on satisfaction for customers who were waiting on that?
spk05: Or, you know, how did you think about sort of the puts and takes there? Let me see if I got that right.
spk06: In the end, what we, you know, as has been discussed in a number of these calls, right? Retention, churn, management, client satisfaction is my number one priority, or as I said in the script, a top priority. So there were a selected set of situations where making additional investments with those clients you know, solved issues with that were causing dissatisfaction and putting the account at risk. And so there were, so we made the call to pull forward effectively what in our industry is called unbilled, but effectively invest in those clients in a way that was obviously not going to affect the timing and implementation of any of our other clients. So there was no negative impact on any existing clients. There was a positive impact. on lines that were not completely satisfied with their solution. And led to, in some cases, some pretty material renewals and just the whole style change.
spk05: Got it. I see. Okay, that's really helpful. Thanks so much, Andrew.
spk10: Okay, the next question comes from Chris Quintero with Morgan Stanley. Please proceed.
spk08: Hey, everyone. Thanks for taking our questions here. I want to ask about the deal closure delays. It's great to see almost half of those already closed in June, but just curious to hear your thoughts and expectations for the rest of the year. Do you think these delays will continue throughout the year, or do you think it was more of a one-time impact, given Q1 is always a seasonally weak quarter?
spk11: Yeah. Hey, Chris. It's Greg. Great to hear from you. Thanks for the question. Yeah, look, we don't focus on the macro-related issues, but what we do focus on are what are the key contributors to accelerating deal cycle. One of those primary areas is really the engagement we have with our clients directly at the executive level and at the technology user level. And we've seen significant improvements. I'm super pleased with, over the last three quarters, just our overall engagement at every level of our customer base. And the second issue that we've really focused heavily on to drive deal velocity is ensuring that our customers see the quantifiable business value associated with what we're providing. And in the cases where we do that incredibly effectively, we're able to accelerate deal cycles and win effectively. And you saw, as I mentioned in my opening remarks, we were able to convert many of those deals in June. And we don't expect this to be a massive issue going forward, and the team is continuing to focus on primarily serving customers well, ensuring they're satisfied, and maniacally focusing on driving pipeline to create a broader set of opportunities for us to drive in the second half.
spk08: Got it. That's super helpful, Greg. And I want to follow up on the pro services change. Can you go into a little bit more detail about maybe what some of those specific examples of that non-billable work that you did for customers and maybe what are some of the positive results that resulted from that work?
spk11: Yeah, we have, as you know, we have a significant professional services business with a broad set of situations And, you know, long-term projects, we've got projects that are, you know, well into a year or two in their implementations. And what we noticed is that, you know, making sure that we have delivered the solution in the timeframe and the capabilities that our customers are expecting obviously is critically important. And there are certain situations, we have an example with a large client in Europe where we had implementation delays that we accelerated our resource allocation to ensure that we got the projects implemented on time. And we essentially funded those resources in Q1. It resulted in an extension of their contract. They added additional products to the mix. And it was obviously a good outcome. As I mentioned in the opening remarks, we had a very large client where we provided the upgrade services for free in order to ensure that we've got a long-term runway with a very, very large client. So I think the point that I made in the open remarks is that just we're making the client success the single most important priority for us, and we made significant investments that we planned throughout the year that we pulled forward in Q1 to ensure that we were addressing our retention issues.
spk05: Got it. Yep, very clear. Thanks, Greg.
spk10: The next question comes from Taylor McGinnis with UBS. Please proceed.
spk02: Yeah, hi. Thanks so much for taking my questions. The first one is just in terms of the cause of the deal delays, I'd love to get a little bit more color there. So do you think it was more macro-related, weighing on those decisions? Was there potentially any disruption from the sales changes that you guys have made? And then as a second part to that question is we think about these deal delays and how that might perlay into the trajectory of subscription billings growth. throughout the year compared to the one huge decline of 6%, any additional color you can give there? Thanks.
spk06: Yeah. I'll take the one on deal delays. I don't think there's a systemic root cause to deal delays. I think clients have their cycles for making decisions. The more strategic the conversations we make, the more you do lengthen cycles because you all of a sudden involve multiple business units or you involve multiple executives who have questions. And so as we become more value oriented in our sales process, as we become more multi-product in our sales process, you inevitably run into, you know, our slightly odd quarter calendar also doesn't mix with the general world. So there isn't the urgency in a February and a May that might be in a quarter close that they have, right, to get a deal done. But there's nothing systemic from, like, sales coverage and behavior sales change. The other statistic that I just think has been a positive is... We have either, so we have the X number of deals that have been pushed from Q4 and Q1. We have won a substantial portion and we have not lost a single one, which to me says that once we get them to the point that we're having deep conversations or they're in the late stage, we are winning them. It's just a matter of when, not if.
spk01: Yeah, just to add Taylor on your questions in terms of billing, when you look at billing, there's seasonality in our billing. So, the decline in Q1 versus the second half of FY24 is mainly because of that seasonality. You know, Q4 is typically our strongest billing squatter and Q1 is the weakest consistent with our prior historical trend. And obviously, year over year, Declined billings due to the factors we've discussed with our revenues also down year-over-year. But as you think about the rest of the year, as we expect bookings in turn trajectory to improve in second half, that along with the seasonality should help sequential billings growth in the second half, as you know.
spk02: Perfect. And then my last question is, so you talked about the deals that were pushed from 1Q into 2Q. It sounds like you are expecting churn and bookings to start to improve in 2Q. But when I look at the subscription revenue guide, it still implies a quarter-over-quarter decline. So can you just help us square those comments? Is it that, you know, maybe the guide just reflects additional conservatism? Is there a risk, you know, that some deals get delayed further? I guess what are, you know, the assumptions driving that guidance?
spk01: Yeah, absolutely. So the, you know, Q2 guidance, as I mentioned in my prepared remarks as well, is impacted by the Q1, you know, sort of deal delays, right, and the impact of sort of the peak churn we saw in Q1. So you have sort of a lag impact from that. And then as we expect to kind of build and sort of catch up on the bookings, improve churn, the second half should really see the acceleration and build from there, right? So revenue is always a sort of a lagging indicator of the bookings and churn impact.
spk02: Thank you so much.
spk10: Once again, if you have a question or a comment, please indicate so by pressing star one. The next question comes from Mark Chappell with Loop Capital. Please proceed.
spk04: Hi, thank you for taking my question. Greg, in response to an earlier question around the slip deals, you noted that you don't expect the deal delays to be an issue going forward. Just wondering if you could just provide additional color around what gives you this confidence. Was it because the slip deals were just more of an internal execution issue rather than a macro concern? Maybe you could just provide additional color around that.
spk11: Yeah. Look, as you know, Mark, we've made you know, pretty significant changes in the overall organization and the structure and refocused on just in-quarter execution on deals as well as a focus on broadening our pipeline, both in terms of our large deals and our mid-sized deals. And so we're making significant progress. You know, we integrated the marketing organization into the commercial organization. The first 90 days on board, we dramatically scrubbed cleaned out the pipeline. And so what we've added back is high-quality opportunities, really focused in the areas of the industries and the solutions that we're incredibly effective and have a higher win rate on. So we're focusing on the opportunities and the types of customers that we win more often. And just as I said before, the engagement of our team, both in terms of engaging with clients on renewals and making sure they're highly satisfied on their projects and engaged in a broader set of relationships within our existing accounts to drive a broader cross-sell penetration, we're seeing tremendous momentum there. And so, again, what you saw, what I mentioned about our June projects, Closing kind of validates the confidence I have that these deals that maybe if they do take a little bit longer, we are able to win the deals. And as we broaden and extend our breadth of pipeline, we're going to continue to have more to work on.
spk04: Great. That's helpful. Thank you. And then, Andrew, you've been with the company about almost nine months now. With EBITDA margins kind of hovering in the low to mid-30% range, do you believe the firm needs to go through another investment cycle just to bring sales execution up closer to market growth rates?
spk06: No, I think about it differently. I think about a reorientation of the culture of the company where the client is at the center of what we do at the center of what we do. So it's not a dollar investment, it's a culture investment. And, you know, I've had conversations with, I don't know, 50, 100 clients, and they're always kind of like, well, what do you, you know, what is your approach? And my approach is my, as I always say, like, my number one is to delight the clients and have them be really happy and excited about the things they do with us. Number two is that we deliver, you know, flawless implementations as a tagline for, like, on time, on budget, ahead of schedule, that they, you know, are getting the value, measurable value as a solution. And the response I get from clients, you know, there's the head of supply chain for a large global logistics company who just says it's just a delight to hear, right? Because you don't hear that kind of style. Instead of feeling the pressure of the sales process, what they're hearing is that we're here to help them drive their business performance. And that's not an investment. That's a lot of just basically teaching client people, sales people how to be client people. It's nothing to do with the product. It has to do with the approach and how we dialogue with And so I don't think of it as a dollar investment. I think of it as an apprenticeship investment. And then things happen. We had like a million dollar opportunity with that client that we weren't even in. And then that person sent me an email and said, you know, I've talked to the team and you guys are in that process based on what better job we were doing on the existing initiatives.
spk05: Great, thank you.
spk10: Okay, the next question comes from Andrew Obin with Bank of America. Please proceed, Andrew.
spk07: Hi, this is David Ridley laying on for Andrew. Quick question. A competitor of yours, Blue Yonder, is acquiring one network competing to a supply chain network. I believe it's the second largest behind you. How do you think that might change the competitive landscape for the company going forward?
spk05: Yeah, Heidi. Thanks, David.
spk11: Look, I think first and foremost, it's validation that the marketplace demand for a multi-tier supplier collaboration via the network is incredibly robust, and there's a massive market opportunity that exists. And it's where we created a very strong position and have won some very large, significant opportunities. And so I think, you know, to me, it's an opportunity to, you know, validate the incredible growth potential that exists in this space. And certainly, they will be a formidable competitor. There's no doubt about that. But we're focused on our core clients. How do we do an incredible job of cross-selling our broad capabilities? If you think about the breadth of our offering, You know, the solutions we take to market are very unique in the marketplace. We have multiple different avenues we can engage with a client. And as we see opportunities in the market, like the supplier collaboration solution, we are incredibly competitive.
spk06: Yeah. The only thing I would add is I think their legacy is really a different industry segment that's far less complicated than ours. So I think... you know, we, where we are most differentiated is where the company's supply chain is the most complicated. And so, and where they're differentiated, I think, from what I understand, is much less complicated supply chain. Their network is, you know, materially smaller, but more importantly, ours is like, you know, eight, nine, ten tiers deep. So, And as companies continue to increase the amount of their production that isn't actually made by themselves, it plays to our strength of our, you know, multi-tier cloud solution. So, it would be difficult for them to establish in the sectors that were strong.
spk07: Good. And then, just wanted to clarify, so, First quarter here is the peak level of churn that you expect returning to normalized levels by the beginning of fiscal year 26. I guess I may have had it wrong, but I thought there was more of a pronounced step down in churn in the second half. Are you sort of saying it's more ratable as we go through the next three or four quarters, or is there still kind of a step down nonlinear step down in the second half on churn. Thank you.
spk06: It's hard to be that specific. What I will say is that based on the account by account review, you should see a pretty material step down in each of the next three quarters with a little bit more on the early side than in the later. facts show. You can't predict everything. Companies buy each other and that causes unpredictable things. Based on the assessment of the 400 plus situations that drive the big ones, it should be a pretty linear step down
spk01: I would say, just to add to that, obviously we don't report churn and don't guide to it, but as we said, you know, Q1 we expect was peak churn, we expect to see improvements, and by Q4, you know, getting back to normalized, sort of normalized levels, that's a big contributor to our expectation of also subscription revenue growth accelerating in the second half, obviously, is the churn reduction as well as bookings, Bill, but the churn coming down and the confidence of seeing better results than expected in Q1 is really what's underlying our confidence where we sit now for the balance of the year.
spk05: Thank you very much.
spk10: Okay, we have no further questions in queue. We have reached the end of the question and answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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