Pivotree Inc.

Good morning, everyone, and welcome to Pivotree's fourth quarter and year-end 2023 earnings call. All participants are currently in listen-only mode. Following the presentation, we will open the time for a question and answer period for analysts. To ask a question, we would ask the analysts to click on the icon to raise their hand. Before we begin, Pivotree would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties, and assumptions reflected in the forward-looking statements, please refer to Pivotree's public filings, which are available on CDAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information to our financial performance, They're not recognized measures and do not have standardized meetings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including our reconciliations to the nearest IFRS measures. Excuse me. Now I'd like to turn the call over to Pivotry CEO, Bill DiNardo.

Thank you, Dennis. Good morning, everyone. Thanks for joining us for our fourth quarter 2023 conference call. With me today is Moa Shore, our Chief Financial Officer, who I'm Pretty sure you're all used to seeing now. And as we normally do each quarter, I've published a CEO letter in conjunction with the earnings results that's available on our website, filed on CDAR. This is my annual view of our performance and includes some descriptions of some of the changes we've made to our reporting package. So I encourage everyone to read the letter. And you'll find a lot of what I'm going to talk about today is found in there as well. So start off with what I said a lot last year. 2023, really, the focus was running a profitable business. And that was really to generate capital to invest in new products and services. It's been, I think, for many companies, a careful balance of cash is critical and But growth remains important, especially when your revenue has good gross margins. You want to keep growing. So last year, we focused, though, on that EBITDA production. I'm really proud of the team. We were able to generate another $600,000 in Q4 and to bring the total up to 2.1. And that was on a smaller revenue base than the year before. Again, really, this was managed through cut, control, contain. These are the kind of levers that when you want to get there on an accelerated basis, we were able to do. And as a result, again, five straight quarters of adjusted EBITDA. A lot of those adjustments relate to some of the changes in our org structure and reduction in force. So again, adjusted mostly because of restructuring charges. I'm going to share with you some of the changes we've made to our reporting pack this quarter, really to help our readers understand our progress against our stated objectives. We've been out and had a number of conversations with folks, and one of the challenges we know everyone has had is trying to really discern what's growing. Everybody knows that there's a part of our business that's shrinking, and trying to separate those to make it easier for people to understand what we're investing in. So we've actually separated our legacy managed services. I do call that LMS. It's not terribly creative, but it's pretty accurate in its description. And that LMS business includes our Oracle ATG managed services, our data center hosting business, and some of the other similar types of managed services that are not really invested for growth. They're on end-of-life type platforms. And I've separated those from our newer growth area of managed and IP solutions, which are referred to as MIPS. And again, nothing creative, but an accurate description of these are managed and IP-based solutions. And that represented about $15 million of revenue in 2023, a strong fourth quarter. in that area as well. And we've also made changes to the way we will report bookings. So really standardizing on reporting on the total contract value of all bookings. A little bit different than the way we've historically done it, mostly because you weren't getting visibility into managed services contracts as they were getting booked if they were renewals. So you're now seeing total contract value, which again should make it easier for you to understand how much of our bookings will translate into go forward revenue. So, again, historically, the managed service bookings really only included new logos or where a renewal or extension was incremental to the original booking. Now you'll see the total value of booking. We've tried to help the transition by giving you visibility into both retrospectively so that you, again, can normalize for yourself how we're performing. So with that, you know, let's move on a bit forward into how we did. So as our business evolved, the old way in which we reported bookings wasn't really revealing the state of the business and how it intended to drive growth. And I think with this separation now, and you can see the LMS and the MIPS, you can see what's growing and what's shrinking. We do think that the total contract value better illustrates the extent of the shift, particularly around our management IP services. And again, you'll see the total previous in the purple is entirely from the value of renewals and extensions in MS. So you see the total now of 16.8 includes all the bookings in the quarter. Again, we're going to see the effects of seasonal demand for legacy services from our customers. And you can see that in the chart. But make no mistake, we're leading with IP in all of our key customer segments. So that's really what we're focusing on. You can see, again, even in Q3, we had a significant amount of LMS bookings. And that was a number of continued renewals and extensions on some of those platforms. But you will start to see that start to shrink. And you'll see that in some of our revenue slides. Professional services really remains important to customer intimacy. It funds and drives product development priorities. We gain a lot of insights from our professional service work. And our new product and services is the drive for greater lifetime value of customers. And it really is derived from the insights that we gain from our professional service business. We're also really good at what we do in the delivery of professional services, and we'll talk a little bit more about that in the next slides. So this chart really illustrates the shift in focus and considerable progress we've made as our managed and IP solutions grew from just 6% of our total contract value bookings in Q1 to 23% in Q4. We've also carried through this segmentation into our revenue reporting, and Mo will discuss that in further detail. So, again, really the point of separating this is to allow everyone to see there is a part of our business that's growing. It's growing at a very good pace. That's the area we're investing in. And a lot of that is what we've been talking about around our IP. So now you can see it and I'm sure you'll have some questions about it. So when we break it up, you've heard us talk about business units in the past. We really have reorganized ourselves into the three business lines. We've changed, again, the way internally we're running the business. We have professional services, our legacy managed services, and our managed and IP solutions. There is some interaction between all three of these, but when we think about bookings, when we think about revenue efforts, and we think about the products, we do think about them in these three buckets. And we continue to deliver world-class outcomes for our customers in 2023. And you can see that in our professional services with the recognition we received from our strategic partners. We won a number of Partner of the Year awards, and that's up against some of the big five who competed with us in these categories. We were innovators in a number of categories as well. The thing that, again, I really want to reinforce, we've probably shied away from this in the past, but we are very good at the professional services work we do. In fact, we're world-class. We have to stay focused on delivering world-class in this category because it does lead to the managed services and the IP, and it wins the favor of customers. And we've got some great customers that keep coming back to us. Even our retention professional services is quite extensive. So again, the only thing I would say that we highlighted last year with some of the economic headwinds was we did see our professional services decline, not because we lost a lot of customers because their budgets shrunk because they took longer to get to the extensions. We found consistently we were pushing booking signings out a quarter as we saw executive teams spend more time scrutinizing the business cases on these things. Again, I think this is part of the course for many folks. I've heard this from many of our peers. It's the same sort of message, which is deals are getting done. They're just taking longer. Clients are buying smaller blocks, so they're not buying for 12 months. Or in the previous year, we saw folks even buying for 24 months on professional service. They're not doing that now. They're buying in quarters, thirds, six months. But the good news is we continue to bring on the extensions as those contracts wind down. The other good news is we saw some momentum pick back up in Q4 with almost 12 million of total contract value bookings in there. So, again, we're seeing some. We're not jumping up and down saying the world has returned to normal yet, but I think we're seeing some signs that customers are starting to open up their budgets again. On the legacy managed service, this revenue, again, includes our Oracle ATG, our data center, and the end-of-life businesses that we've talked about in the past. We are thrilled that our peak season in 2020 through was, again, a great success, seeing sizable increases in our customers' average daily order volume, and we experienced zero preventable outages. So, again, what our customers really want in that legacy managed service business is silence. They want it to work, which it's done for years. Many of them are going to move off. We've talked about this. They're going to move on to, quote, unquote, more modern platforms. But with the kind of customers we have here that do the kind of volume they do, it's a slow and gradual process. So, again, we see them continue to renew customers. Stuff we thought was going to turn off did not in 2023. We have started to see some of that turn off in 2024. It's built into our own forecast. But we've also had a couple of surprises where people we thought were going to go have signed again, some asking for 12 or 24 month contracts. So this really is an asymptotic curve. I guarantee at some point it will go to zero. I just can't tell you when. And we'll continue to manage it profitably while we do. The managed and IP solutions, this is the area that we're probably most excited to share the progress. We've had those questions. Where are you growing? And this is the area we're growing. And this really includes three core products, SKU Build, Control Tower, and WMS. We've talked about Connect in the past, which is our API as a service business. That business continues to do well, but candidly, it's probably really part of the Control Tower business now is what we've observed and the way it seems to get packaged. So again, we really talk about this managed IP solutions really as those three products right now, SKU Build, Control Power, WMS. We've had some good success in the total contract value bookings in a category that grew over 50% in 2023. Look, we expect to see some volatility in this segment, especially in the early days, particularly around consumption and transactional volume fluctuations. So, again, this is not necessarily SaaS. Some of it is. A lot of this right now is what we call transactional revenue. Even Connect is transactional revenue based on the number of transactions that are occurring over some IT infrastructure. In some respects, that's like almost CPU based licensing with transactional. SKU build is very much gravitating towards the sale of completed SKUs or enriched SKUs. So again, there's some volatility, but we're seeing growth in the area. We're seeing a lot of interest in the product and that is machine learning and AI assisted. So we do it better, cheaper and faster than the alternatives. And that's really playing out well in terms of the number of demos and POCs that we're running with customers right now. We're coming off a peak in Q4. Again, while we had a fantastic quarter, I think the run rate would suggest we're approaching 20 in that category. I would normalize that. There's some big chunks in there. There was some, what we'll call them, overruns in some areas, a lot of consumption. I'd think of this more as a 3.5 to 4 million run rate right now. and something we're building on top of. So again, a key message here, three different businesses, all of them important to us. Professional services, again, world-class at what we do. Customers that keep buying from us. Last year, smaller budgets. We saw the same thing in COVID. We saw a shrink in the PS during the COVID period and then a rebound. We expect a rebound in this category as well. Legacy managed services, we're going to see the legacy managed services with a continued decline, and the managed and IP solutions are the reason why our total managed services have been above flat in terms of growth. Again, when you break it down, managed IP solutions growing very well and working hard to make up for the declines in legacy managed service. So I'll pass it off to Mo to take you through some of the financial highlights.

great thanks bill now we'll go to the next slide so as we've introduced on this call and through our through our filings revenue standpoint is uh aligned in segmentation to simplify and focus on the categories that bill described legacy managed services managed ip solutions and professional services So you've got the granularity of managed services. What used to be reported as managed services to be now segmented and supplementary first to show legacy managed services from the managed and IP solutions. The investments we've made in new products and services are now a more material driver for us today. And I think we'll provide our shareholders a better understanding of our growth performance. And I'll be able to describe what's in legacy managed services and some of what's going a bit deeper. So managing IP solutions, what's included in there are transactional revenues, product subscriptions, and managed services on some of the more current technologies that we support. This segmentation, again, will provide visibility to how the growth in our managed and IP services offset the legacy services through 2023 to net out the year at overall growth for what we used to call managed services. So revenue from managing IP services was $4.6 million. It was an increase of nearly 80% year over year. We did benefit from a favorable spike in Q3 and Q4. And as the bill described, we normalized for it. We're probably more on a run rate of $3.5 to $4 million. But we're excited with the measurable progress we've made in 2023. And we do expect this to continue with the investments we're making into 2024. Now, for legacy managed services, if you may recall, during 2022, we benefited from the delayed churns as customers signed and re-signed and continued, especially the Oracle ATG most significantly. And during Q3 and Q4, you can see from these numbers that we've experienced some of the churn we've been referencing. And within this segment, as we've said, we continue to see a mixed bag of customers. There are still customers that are looking to renew and delay the transition. But as Bill said, it's going to go to zero. It's just a matter of when. But right now, we still see a mixed bag of customers looking to renew. Professional services delivered sequential growth increase. We did experience, sorry, we're still on the prior slide, though. Professional services delivered a sequential growth because we did experience a slight increase in demand. Our bookings represented in Q4 and in particular within some of our commerce solutions. And based on Q4 bookings, we expect some of that growth to contribute to Q1. So moving down the income statement on Q4 gross margins, it was 46.7 versus last year's 47.3. It has shown a steady improvement through 2023, as you can see. The improvement in gross margins was driven by a combination of our legacy and managed 9P solution growth. The gross margin in that segment has improved to 55.3% up from the 54.6% of the prior year. Professional services margins, they declined from the comparable period of last year, Q4, from 42% down to 38%. This was primarily driven by the revenue decline that we've seen in the professional services segment. Sequentially, we continue to see an improvement in professional services. It improved in Q4, it got closer to the 40% mark that we'd look to operate at or above. We will look to continue to manage utilization in close alignment to our bookings and the expected demand. Now, one highlight also on the right side, you see operating expense, 11.1 down from 12.8 million in the prior year and 11.5 in Q3 of 2023. This was an area that we focused on. We said it was part of our objective to obviously mitigate against the decline in revenue, but also to optimize for EBITDA and cash flow. You can see on the charts a significant decline since 2022, where we started to take some initiatives. We've reduced our cash operating expense about $3 million off of Q3 and Q2 levels of 2022, which contributed to the overall EBITDA results and the mitigation to the revenue decline. Obviously, in this environment, we'll continue to stay flexible and we'll adapt while we continue to drive and focus on sustainable, profitable growth. So despite the revenue decline, this was our fifth quarter of positive adjusted EBITDA, which also included investments we continue to make into our managing IP solutions. As we approach the start of 2024, we will be ramping up some of our sales and marketing and R&D spend in support of the overall growth objectives as we also look to accelerate our products. But through the course of the year, we'll remain focused on delivering overall positive data. We believe the investments we are making in our business will contribute to future growth in a very meaningful way. And through our new segmentation, it should be easier and more visible for our shareholders to see where and how we are delivering growth. Now turning to the balance sheet, we ended the quarter with cash inclusive of term deposits of over $10 million. In Q4, we generated 1.1 million positive cash flow from operations. Within there, a strong contributor was our working capital. We had really strong collections. that contribute to the overall results. We do expect seasonal outflows going into Q1 through working capital, and obviously we'll continue to manage and make sure we continue to stay on top of our collection, which the team has done a really good job on, and obviously a testament of the clients and the services we're delivering. In the fourth quarter, we allocated just slightly over $700,000 to acquire over 400,000 shares under the NCIB. We will continue to manage the buyback program with consideration of the cash we are generating from the business post our organic investments. As mentioned, the business is managing towards operating cash flow positive. We believe this will be accomplished while continuing to make the necessary investments to grow our product revenue. Also, we're pleased to announce that our new credit facility with National Bank of Canada of 12 million plus access to an additional 15 million accordion facility that has now been closed. This replaces the previous facility we had with Bank of Montreal. You can find additional information that has also been filed with CDAR. I'm going to turn it back to Bill now for a closing summary.

Thanks, Paul. The team continues to find ways to operate more efficiently and we're seeing good leading indicators with our new solutions. So again, we're going to continue to produce cash from operations by maintaining a profitable revenue mix and those critical cost controls. Again, five quarters, you saw it started in 2022. That muscle got exposed and now the team is hopeful that we're done with cut, control, contain and focus on profitable growth to drive that bottom line. But that muscle has been built and And again, the team will adapt relentlessly as the environment changes around them. We are going to continue to invest in the growth of managed IP solutions. Again, this is the future of the business. This has always been the stated goal. We're driving to be a leader in frictionless. And again, the way we control our destiny is we produce cash and we can invest in these products. We are starting to see M&A opportunities where folks have run out of runway. They've got good ideas. They weren't able to continue to fund the patients required. I think this is the difference for us is, again, because we produce our own cash and That is the source of our investments for new and we're producing cash with new investments. So again, I want to reinforce last year, those product gains we made, we produced operating cash flow while making those investments and that continues to be the goal and objective. uh we are filling key leadership roles particularly given the need to grow and drive growth we did fill the chief product officer role hopefully you saw that announcement we're very excited about the impact he's already having we are we just signed and we'll be announcing a chief revenue officer has been hired and starting shortly and the one last piece of the puzzle is we continue to shift our focus to more product orientation is that we will want a chief technology officer this year. With that role done, I feel like our team is really complete for the future state of Pivotry, which is a product orientation. And we'll continue to opportunistically pursue M&A opportunities. Again, I have not had anything cross the finish line yet. Mostly valuation is the issue, not a shortage of conversations, not a shortage of strong discussions and diligence, but ultimately the usual driver to an incomplete transaction right now is unable to come to a meeting of the minds of valuation. And so we will continue to look for opportunities that accelerate our products and our product roadmap. And I think there'll be more of those this year. With that, I will thank everyone for joining the call and wish you all a great week. And we'll take some questions now from, I believe, our analysts who are on the call today.

Thank you, Bill. We'll now take questions from the analysts. To ask a question, please click on the icon to raise your hand. Our first question comes from Thomas Hui from Paradigm. Please go ahead, Thomas.

Thomas, I think you're on mute. Hey, it's Daniel here. Hi guys. I think I messed up, mixed up my links. Good morning. So my first question was just on the revenue mix. So, you know, some dynamics going on with the legacy business managed services, clearly a focus for you next year. So how do you see the mix evolving? I mean, it has certainly improved from the year prior, but is it fair to expect a continued improvement or is this kind of a steady state in the, at a near to medium term.

So maybe let me just clarify, are you asking about sort of managed service overall being flat and augmented by the mix? Or is there a different question? I want to make sure I'm answering the right question. Sure. Managed services versus professional services. Okay. Yeah, I think what we've tried to show, Daniel, is we've now broken out our managed services into two pieces, LMS, legacy managed services, managed and IP. And you will continue to see the decline in legacy, as we've always maintained. I think all you're going to do now is you're going to see it with full visibility. So this past year, even though managed services total was, I think, up about 5%, the reason it was up was not because the legacy was growing. It was because the managed IP was growing faster. then the legacy was shrinking. And so that'll be the constant friction over the course of the year for total managed service state. If the legacy stuff declines quicker, you know, again, we're growing very well on the MIPS, but it's on a small base. So our goal and our hope is that these will continue to work in lockstep and eventually there won't be much of the legacy left and it will have been overtaken by our MIPS. Does that answer the question, or is there a follow-on? Oh, it looks like we lost him.

Yeah. Yeah. Okay. Our next question comes from John Hsiao at National Bank. Please go ahead, John.

Good morning, guys, and thanks for taking my question. So, Bill, could you maybe talk about your stock utilization rate this quarter? Because it looks like the PS bookings have rebounded. So I'm just wondering if this is going to drive like a gross margin expansion in the near term.

Mo is very close to this. I'll let him answer that.

Yeah, I think it helped contributing to, I'd say later in Q4, some of the benefit that we got, the sequential gross margin improvement. And I think we also were able to mitigate what's always a holiday peak season. So I think we're all pleased with the results and the improvement in Q4. And I think you're right, as you see the bookings results, we are seeing more pressure on our utilization in Q1. I don't think we're in a position that's probably, I would say... We're too high of utilization, but I think it's starting to hit a decent mark to indicate that there should be gross margin improvements as a result of the demand we've seen on the professional services side.

Okay, thank you. And Bill, you just mentioned your goal is trying to be a product-oriented company. So could you just maybe give us some colors regarding the product roadmap in the future? I understand you already have SKU management, warehouse management, and control towers. What else should we expect to see down the road in terms of new product to address your customer pain points?

Yeah, it's a good question, John. I think that's one of the reasons we hired Cliff is we We think we've got three out of the gate, moving them through their market paces today. But when we sit down and talk with customers, especially our professional service customers, and understand the challenges they're trying to overcome, there are recurring themes. There's areas where the current offering they have is not solving the problem for them. And we're starting to find more and more customers actually using the term frictionless commerce and that they realize they need to remove friction from within their systems. And so what I would tell you is we have no shortage of ideas in areas where we see white space. The question is, you know, how much did we try to consume in any given period? I think we're comfortable trying to accelerate these three and investing in these three. I don't think you're going to see us double that in 12 months with with six on the go. Our focus right now is really figuring out which if and hopefully all three of these could be winners but we're really focusing on these to get to more scale and then there's a number of things that cliff is doing to ingest and poc some new concepts so i think we'll have a disciplined approach to how we bring new ideas forward how we test them early and how we prioritize investment in them but if you think about us you know over a longer time horizon i expect we will have a portfolio of products that are leading our customers to a more frictionless state

Okay, thanks. The last question is, I believe, Bill, you mentioned in the letter that your plan is to close down the remaining data centers and fully transition to the cloud. So could you give us a timeline? And also, how should we think about the impact from a quantitative perspective?

Yeah, there's a couple of things that come with that. So look, data centers are still valuable, particularly for infrastructure players, which we are not. And every cloud needs a data center, but we're not in that business anymore. And the capital cost, the capital outlay, And the frankly, the inability to match the sort of timing of customer demand easily. So when you think about our legacy managed services in particular, having all of those customers on the cloud really allows for more graceful degradation. We are able to turn servers off in the cloud as customers wind down their contracts. Data centers take planning to get out of. So we've been planning this for quite some time. We should be majority out of data centers, especially fixed cost data centers by this summer. All of our customers have been notified and there are plans in place now and have been worked on. some of which will yield cloud-based revenue as we migrate them to our cloud. But the biggest change I think you will see over time is lower CapEx expenditures. The data center requires CapEx and the cloud environments do not. And that corollary to that as well is you now start seeing the AWS costs will creep into the managed services cost of its own. So we've got work to do to make sure we contain those costs. Cloud has a terrible reputation for ramping up on an accelerated basis if you don't carefully monitor it. So that's something we pay careful attention to.

Okay, thanks. I'll pass the line.

Thanks, John. Thank you. Our next question is from Jesse Pidlack at Cormark Securities. Please go ahead, Jesse.

Hey, good morning. Just thinking about your commentary on winding down the data centers and some of the churn you're seeing in the Oracle business itself, combined with the lumpiness in the MIPS in Q3 and Q4. I guess overall, how confident are you on being able to drive consolidated growth in 2024?

Yeah, there's a lot of factors that go into it. What I can tell you and the way we think about running a business in this economy is making sure that we produce cash, whatever the revenue number is. So we have worst case scenario planning that will allow us to execute and deliver cash flow on a lower revenue number. But all of our plans and our investments have us driving to a higher revenue number. But I wouldn't give guidance at this point, Jesse, on how much we're going to grow. If we're going to grow, I think really we're going to play this quarter by quarter with a confidence in the new products that we're launching, a belief that the professional services is going to rebound. And that question will be when, right? We're starting to see it in the bookings. That'll be your first leading indicator of whether we're driving to growth for the year or not. And you're going to hear again from us in 60 days. So you'll have a pretty good sense of how we're pacing in 60. But again, in this economy, I think we're being cautioned by many folks. Be ambitious, be bold, but be conservative in your cash management. So that's the balance we're trying to strike. It's critical in this economy that you maintain your cash and protect your long-term investments, which is what we're trying to do.

Yeah, understood. There's definitely no shortage of moving parts there. Maybe just on gross margin, can you maybe elaborate a little bit on, is there much of a difference between the managed IP offering and the legacy managed services?

I'll let Mo jump on that one.

Just to make sure, is there a difference in terms of the cost structure, the model, the contracting? Just to make sure I answer the question.

More so just the actual realized gross margin level between those two lines.

Yeah, obviously, the legacy business has been generating a decent amount of gross margin for us, obviously, given that it's a larger mix and contributing to the overall gross margins. But I think the path for the non-legacy managed and IP solutions That has a path to a model over 60, over 70% over time. Obviously, for some of this stuff, we're applying a pricing strategy where we drive up utilization of the product that might have an impact short-term, in fact, keep us around the 50 range and 55 range for a segment that's within that revenue line item. But I think overall, they all have a path towards a model that generates 70% and above, as you'd expect from a product suite.

I think the single biggest difference, Jesse, that you probably see with them are the difference in step costs. In the legacy managed business, as in with infrastructure and people who manage infrastructure, you have legacy step costs. They're more fixed in nature. And so while the gross margins may not fluctuate, some of those fixed costs are reducing the contribution and flow through margin, if you will, or the EBITDA contribution. I think we see more of the MIPS gross margins flow through. Again, because there's a higher degree of automation. There is a certain fixed cost threshold, right, which is why in the early days you're not producing as much free cash flow, but the incremental gross margin tends to flow through better. So I think as we scale, that business gets much more exciting from its cash contribution.

And maybe just to expand, because maybe where you're also going, Jesse, I think part of, there's still a, where you start talking about the ticketing system, logging, tracking, some of the stuff that's happening to the customer, there's still some shared solutions between those, which is part of the reason why you haven't seen the segmentation. through our gross margins further is because there's still a shared cost component, not a large component, but there's still a cost component there that's being utilized by both. I think over time, as those start to segment and legacy becomes smaller, then obviously we can probably start shifting to being clear and start reporting on our gross margins by each of those.

That's helpful. And then maybe just one final question, just the, you know, the step up in MIPS revenue in Q3 and Q4. Was that broad based amongst a few customers? Or is it really driven more by one or two customers?

Yeah, I'd highlight that that was actually unique to, I'd say, you know, less than a handful of customers that contributed to a spike in demand. But we knew it was a short term demand that I was just trying to get through some of their annual goals and targets so they can at least meet some of the required, mostly on the skew transaction side to hit the volume that they were looking to hit before the end of the year.

As each of them grows, Jesse, we will eventually break out with a little bit more clarity, the different types of revenue line items today. It's just easier to aggregate them all. There is a distribution of customer usage. And so things like control tower, we're seeing penetration. We're following a little bit of a trend. Get it in there. It's not so much about the revenue on the first implementation or the first license. And we're seeing how that expands over time. So, again, you're going to see a mix of how we define success in that group, right? Getting penetration of the product as an entry point is critical this year in something like Control Tower. where we expect the out years will really see acceleration in something like control tower as usage and consumption starts to really kick in. So there's a whole mix of things inside that, that bundle with varying degrees of what we call success. And they're not all measured just by revenue when it comes to new products.

That's all for me. Thank you.

Thanks, Jesse. Thank you. Our next question is from Max Ingram, mechanical ingenuity. Please go ahead, Max.

Hi, thanks. Can you hear me okay?

Yeah.

Yeah. Some great questions so far. I just have one additional question, and that's on the data side. Are you continuing to see a lot of demand for data management? And is AI driving incremental demand there?

So the short answer is yes. Data continues to be a hot topic. Data continues to be a major driver of our pipeline. But candidly, last year, a big part of our professional service was on the data side, not because customers weren't spending. They were just spending less in their progression on some of their data projects. Or they got to end a project and they took pauses. And so, yeah, data continues to be huge. And to your point, in no small respect, the ability to leverage AI and machine learning usually starts with having high quality data. So there's a lot of data assessment work that we're doing right now. In fact, almost every customer we offer to jumps up and says they'll take the data assessment because it really is about the foundations. And that data quality then drives commerce and supply chain. um so yeah i mean data continues to be foundational i think data is you know the future of all of our categories rides on top of data i will tell you that the um probably the most important category to most of our customers right now is that um the supply chain component of data. So what is driving out of stocks? What is driving returns? What is driving failures to close the transaction often is bad data. But the supply chain part, the back end, the get is driving a lot of activities right now with a lot of our customers. This is the area they're looking at wanting the greatest efficiency gains. That doesn't always mean dropping in a new WMS or OMS. It could mean fixing their data in order to fix their back-end supply issues. But without question, the hottest topic right now seems to be related to supply chain and fulfillment.

Okay. Thanks very much. That's helpful. I'll pass the line. Thanks, Max.

Thank you. We have a question from Daniel Rosberg at Paradigm Capital. Please go ahead.

Thanks. Sorry about earlier. I had some technical difficulties on my end. But just one quick follow up for me, just on the working capital. So it seems like cash management has improved to compare this quarter versus the top of the year. Just on the ARAP levels, is this kind of a sustainable level or should we expect a return to the mean? Just help us think about working capital.

Yeah, it goes a bit through a bit of seasonality. I think in Q1, you'll typically see a bit of a higher cash burn or cash use as a result of working capital, which obviously a lot of this stuff is about timing around collection. We are seeing the usual that Q1 will probably have working capital go in a different direction. And obviously getting back on the schedule kind of through seasonality, Q2 will start kind of recovering some of that as well. So I kind of reference historical trends and Q1 should probably see something similar. But yeah, Q4 I think worked very well for us because our collections was very strong and We're on top of our receivables and customers were paying reasonably well. So no signals or concerns, at least right now, from our customers around their ability to pay and how satisfied they are with our services. Great.

Thanks for taking my questions.

Thank you. It looks like we have no further questions. Bill, I'll turn it back to you.

Again, thanks, everyone, for joining our third quarter earnings call. Dennis, thanks for helping moderate. We'll be back in, I think it's probably 60 days or so, Mo, for our Q1 earnings call, and we'll look forward to sharing our results and answering questions then. Thanks for taking time with us today.

Thanks, everyone.