Coveo Solutions Inc.

Good afternoon. My name is Jerry and I will be your conference operator today. At this time, I would like to welcome everyone to the Coveo second quarter fiscal 2025 financial results conference call. All lines have been placed on mute to prevent any backhoe noise. After the speaker's remarks, there will be a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, November 4, 2024. I'll now turn the line over to James Bowen, Head of Investor Relations. Mr. Bowen, you may begin your conference.

Good afternoon, and thank you for joining us for Coveo's second quarter fiscal 2025 financial results conference call and webcast. With me today are Louis Taitou, Coveo's Chairman and Chief Executive Officer, and Brandon Nessie, Chief Financial Officer. As a reminder, that remarks made on today's call may be forward-looking statements within the meaning of applicable securities laws, including those regarding our plans, objectives, expected performance, and our outlook for the third quarter and fiscal year 2025. These forward-looking statements are given as of today, and while we believe any statements we make are reasonable, they are based on current expectations, which are subjects to risk and uncertainties, and actual results could differ materially from those expressed or implied. Proveo disclaims to the greatest extent possible allowable under applicable law any intent or obligation to update our forward-looking statements, whether as the result of new information, future events, or otherwise. Further information on factors that could affect the company's financial results are included in filings with Canadian securities regulators, including in the risk factors section of the company's most recently filed annual information form, as well as the key factors affecting our performance in the company's most recently filed MD&A. both of which are available on our CR Plus profile and on ir.coveo.com. Additionally, some of the financial measures and ratios discussed on this call are either non-IFRS measures or ratios or operating metrics used in our industry. A discussion on why we use these measures, ratios, and metrics, and, where applicable, a reconciliation schedule showing IFRS, versus non-IFRS results are available in our press release and our MD&A issued today, which can be found on ir.coveo.com and our CDR Plus profile. Please note that unless otherwise stated, all references to financial figures made today are in U.S. dollars. Finally, presentation slides accompanying this conference call can be accessed on our IR website under the News and Events section. I will now turn the call over to Louis to review the highlights of our second quarter before Brandon takes you through the financial details and our outlook for Q3 and fiscal 2025. We will then open the line for Q&A and will ask that you limit your questions to one at a time to maximize participation. So with that, Louis.

Good afternoon and thank you all for joining us today. I'm pleased to share that Coveo's second quarter financial results have once again exceeded our guidance. We delivered SAS subscription revenue of $31.2 million, cash flows from operations of $1.4 million, and adjusted EBITDA improved to $1.5 million. These results demonstrate that Coveo is building momentum. but also that the applied AI market is inflecting the real concrete demand after almost two years of discovery, learning, and experimentation. Our customers are some of the most sophisticated technology leaders and brands in the world. Their IT and AI teams are increasingly recognizing the unique value that Coveo offers in providing the key and necessary AI search software stack that powers generative AI for personalized and highly relevant digital experiences, and also how that translates into tangible business and financial benefits. We're fortunate to be in a market where the performance and precision of technology can be measured through A-B testing on digital experiences, and Coveo is winning. As intricate knowledge and comprehension around AI and generative AI increases, Enterprises now understand that our decade-plus of perfecting AI search technology at large scale has become highly valuable to insert generative AI with the scale and precision that enterprises need in their digital experiences. This is true across customer service and knowledge experiences, workplace, websites, and commerce. I want to first discuss the state of the market for applied AI and digital experiences and why Coveo is well positioned for growth. Coveo's strategy is entirely anchored around the imperative for enterprises to bring AI at every point of experience, which we believe will unfold rapidly within the next 12 to 36 months. In our view, enterprises that do not adopt AI to deliver highly personalized, relevant, And now, thanks to generative AI conversational and advisory experiences within their commerce and knowledge experiences online, they will lose. This is because they will have to compete against those who will be adopters. The quantum leap in creating with AI remarkable digital experiences that drive superior performance is simply too high to ignore and compete against. We talk to our customers about the AI experience advantage, and their need to gain that advantage is the catalyst for Coveo. When ChatGPT first hit the market, now two years ago, back in November 22, it also became a catalyst for AI in business. Generative AI was obviously a very novel and powerful technology, But even prior to that, most businesses outside of the tech sector had not fully embraced the importance of AI, particularly within digital experiences, because most people did not yet understand its power and the paradigm shift. Yet, paradoxically, companies like Netflix and Spotify had been using machine learning already for more than a decade. to deliver your content experiences and so did Amazon and Wayfair for your shopping experiences. Coveo has been involved since 2012 in the application of AI to personalize search, recommendations, and digital experiences on large-scale enterprise data for over a dozen years. We were losing large language models in 2021 with key customers to combine passage extraction technology with semantics and relevance and deliver the level of content precision that large enterprises needed. When Chad GPT was released, we understood the importance of language models to create remarkable experiences, but also the importance of AI search underneath it for enterprise-grade security and precision. We think the market has now started to discover that. In our field, the technology required to meet enterprise-grade requirements and achieve significant ROI from AI is becoming increasingly clear. While large language models now play a critical role in digital experiences, they're often not sufficient on their own. Many of you might have heard the term RAG, retrieval augmented generation, which is the required requirement technology to make LLMs deliver at the necessary level of precision that enterprises need, what ultimately drives the ROI. The tough part of RAG is the R, finding and understanding the right set of content and data, and through semantics and relevance capabilities, feeding the right context so that the large language model can output answers with higher precision and relevance. This is what Coveo can do across any enterprise content at large scale. This is a space we lead and it's highly valuable, very important and crucial for success. Enterprises have secure content everywhere in many forms and they deliver experiences through a high number of engagement applications on websites, in commerce, customer service and in the workplace. Coveo can bring AI search personalization and generative answering together agnostic to content and can be inserted into any digital experience. And now thanks to our recently released relevance augmented passage retrieval API, they can achieve this securely using the LLM and AI architecture of their choice. What Coveo does is not something that co-pilots or agents do. outside of their own content ecosystem and UX. We're hearing this now consistently from our customers, prospects, and as you've seen from other Coveo recent announcements in the past few days, from the large platforms in the space that we partner with. This essential software stack necessary to ground an AI experience in accurate and relevant data, built by Coveo over 15 years, is both sophisticated and challenging to replicate. In our December 22 quarter earnings call, subsequent to the launch of ChatGPT, we explained that we would work with our customers to combine AI search and generative AI to create the most remarkable experiences at large scale, and that we would be last to hype and first to result. We were among the first companies to launch generative AI in full production at large scale with scores of the largest tech companies and brands in the world. And we also published the benefits measured such as double digit contact center volume reduction, for example, all customer case studies, which you can find on our website. As we mentioned in our last earnings call, It is our belief that the generative AI hype is now subsiding, and that after a period of discovery, learning, experimentation, and evaluation, enterprises are now far more proficient in AI and generative AI, have learned the requirements and intricacies for its application, and can sort out who can deliver versus who cannot. They're increasingly beginning to adopt AI solutions in production, in particular within the delivery of digital experiences, our area of expertise, but only from technology partners like Coveo that can demonstrate results superiority and measurable benefits. While investors have flocked to the silicon and hyperscaler layers where foundation capacity is built and CapEx is deployed, the applied AI market where the high value use cases will be created and not commoditized is bound to grow significantly. We believe Coveo will be part of that because the value and adoption of a technology such as ours is inevitable. As a result, we are now seeing buying behavior resuming and are pleased to see that translating into our own bookings momentum. We're seeing success with both new and existing customers alongside a pipeline that has continued to grow significantly. We're very proud that our second quarter was our best quarter for new logos in the past two years, since the pre-gen AI disruption period. In addition, we grew the number of customers using our relevance augmented generative answering solution by 50% from where we were just 90 days ago. We're encouraged by the progress we're seeing and are excited to build on this momentum. Leading-edge tech companies are investing and delivering generative experiences with Coveo. Customers like SAP, Concur, F5 Networks, and other leading global technology corporations are seeing double-digit improvements in customer self-service, significant reduction in case submissions and contact center volume, and the ability to leverage generative AI to drive real ROI in multiple other use cases, including workplace intelligence for leading financial services institutions and others. In addition to generative AI within service and workplace knowledge experiences, the other exciting story at Coveo is our promising momentum in commerce. This growth is underscored by our partnership with SAP, which has played a key role in driving client engagement across the globe. Last Thursday, we also announced an exciting new global partnership in enterprise commerce with Shopify. As Shopify grows with a powerful offering for the enterprise segment, Coveo was recognized by Shopify for its leading AI search recommendations, personalization, and generative experience technology for large-scale B2B and B2C merchants. We believe Coveo will be essential to support the scale and sophistication of those customers, and we're thrilled to work with Shopify on this exciting and growing market opportunity. In Q2, Dentsfly, the world's largest manufacturer of professional dental products and technologies, selected Coveo for their B2B e-commerce platform. Due to our ability to support the complexities of B2B, including product discovery, relevance and personalization, pricing complexity, inventory, and many more, our partnership with SAP positioned us as a trusted advisor, solidifying our relationship with this client. A leading American food service distributor with approximately $24 billion in annual revenue selected Coveo's B2B commerce and generative AI due to our leading-edge solution and dedication to innovation. Coveo demonstrated how our technology is superior and uniquely suited to support the complexities of their B2B requirements. We further saw success with commerce in Australia and New Zealand with our newly established ANZ team. Alongside SAP, we successfully onboarding a leading furniture and homewares retail client, which was sourced and closed in four months. Our superior AI merchandising technology, speed of engagement, and ease of collaboration were pivotal in earning this customer's trust. In addition to our strong quarter on the sales side, I'm very encouraged by the continued investment and growing momentum with our key partners and alliance channels, an essential part of our go-to-market strategy. Large platforms and apps vendors are increasingly validating that Coveo is a necessary part of the preferred architecture and solution track in enterprise AI experience use cases. During the second quarter, We announced an additional partnership with Salesforce to leverage the power of Coveo's data connectivity and relevance within data cloud. We've collaborated with Salesforce for over a decade. This additional strategic integration creates a powerful synergy for larger enterprises with multiple secure content sources and complexity and large-scale relevance needs. Combining Coveo with Salesforce Data Cloud allows them to improve customer satisfaction and reduce costs through more precision in complex service interactions. Salesforce's GM of Service Cloud has publicly stated that Coveo's extensive connectivity to content sources and its capability to add relevance to content is a key enabler for Salesforce Enterprise customers with complex search requirements and service. Customers such as Dell, F5 Networks, Xero Software have validated this after extensive testing. We are pleased with the progress here and excited to continue growing the partnership with Salesforce and drive improved bookings from our joint customers. Also announced last week, Coveo has now joined Amazon's AWS ISV Accelerate program, bringing our market-leading AI search recommendations and generative experiences to AWS enterprise customers. AWS will work with us to connect the AWS sales organization and help co-sell and facilitate the delivery of our industry-leading AI and generative AI solutions to enterprise customers worldwide, also by providing access to simplified transactions within the AWS marketplace. And earlier in the quarter, We announced a strategic partnership with Optimizely, a leader in digital experience platforms for the enterprise. This partnership combines our AI search, generative answering, and relevance capabilities with Optimizely's composable content management system to help businesses provide personalized, cost-effective, and connected experiences. I believe the recognition from these industry-leading platforms is a further sign of validation of our leadership position in the applied AI landscape. And this is also recognized by our growing network of systems integrator partners globally. I want to turn to innovation. We're pleased with our progress and achieved several very important innovations in the quarter to further our leadership position. We announced the launch of our new Relevance Augmented Passage Retrieval API. For simplicity, think of this as bring your own LLM. This platform API allows customers to leverage everything that comes before the prompt, allowing organizations to connect their own large language models with Coveo's relevant and robust API retrieval and relevance software stack to seamlessly and securely ground their gen ai experiences in the entirety of their enterprise content and experiences this solution will be attractive for customers who want to build their own infrastructure layer unlocking a larger cam and addressing a portion of the market we previously did not serve the initial demand for this product is very promising and we're actively onboarding companies into our early access program and collaborating with them to shape the future of this offering. We also released several important enhancements to our commerce capabilities surrounding our merchandising capabilities and AI-powered product discovery. With these enhancements, we believe we have built the most complete AI-powered commerce platform in the industry. bringing together the power of AI to every merchant and maximizing commerce outcomes. And finally, with our relevance augmented generative answering solution, CRGA, we continue to extend our lead, delivering optimizations at an impressive pace. In addition to providing customers with greater flexibility around how their answers are delivered, we delivered important backend improvements that helped improve answer rates by another 20% and brought even greater and unmatched accuracy to our customers' generative experiences. To illustrate this, SAP Concur, the leading travel and expense management solutions provider for businesses, originally launched on CRGA and reported publicly that they were seeing an impressive 11% case deflection rate. After our new enhancements, SAP Concur is now seeing a 30% reduction in cases per 1,000 search sessions, resulting in an 8 million euros reduction in cost to serve. It's customer successes like this that really make us proud. Before we move into the details of our quarterly results, I'd like to take a moment to welcome Eric Lamar to our board of directors, which we announced this September. Eric brings 30 plus years of experience at McKinsey as senior partner leading the digital practice and is the author of the book, Rewired, described as McKinsey's bestseller guide to out-competing in the age of digital and AI. Eric brings extensive experience in advising Fortune 500 companies around AI and digital transformation, and we're thrilled to have Eric help us during this important phase of Coveo's growth journey and as we deliver value to our shareholders. With that, I will now hand the call over to Brandon to discuss our Q2 financial performance and outlook in more detail. Brandon?