Pivotree Inc.

Good morning, everyone, and welcome to Pivotree's third quarter 2024 earnings call. All participants are currently in listen-only mode. Following the presentation, we'll open the line for a question and answer session for the 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 relating to 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 about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including for reconciliations to the nearest IFRS measures. 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 third quarter 2020-4 conference call. With me today, as always, is our Chief Financial Officer, Mo Ashour. As we normally do each quarter, we've also published a CEO letter in conjunction with our earnings results that's available on our website and filed on CDAR. And I'll be covering some of that same material today. Additionally, we've made some key changes to set the business up for leaner growth, which we shared in our pre-earnings release. And we'll go into some more detail over the course of the call today on what that means. So far, 2024 has been a period of significant transformation across the whole business. I'm pleased to say that we are now well positioned to execute on our strategy and deliver leaner growth and to generate cash flow. We've seen positive indications in our managed IP solutions category, where trailing 12-month revenue is up 28% versus the previous 12 months. MIPS bookings have been holding relatively constant in the three plus million dollar range, and we continue to see quality late stage pipeline being built and contracts in the works right now. And again, we said this category, given some of the transactional nature of SKU building, will be a bit volatile. We've had some very lumpy bookings in the past that extend over multiple months and sometimes over multiple years. But again, we're seeing a sort of consistency with it that makes us quite happy. Across the business, we had a strong quarter of bookings, up 13% year over year, which is driven by a variety of things. And I'm actually going to get into it in the next slide around what some of the mix was inside that bookings. But at 19.2, again, fairly consistent in the last couple of quarters. And again, up versus a year ago. And again, most importantly, as outlined in our pre-earnings release, we identified and executed on $8.5 million in cost savings across the business. Now, these reductions are going to allow us to match more closely and align with industry benchmarks and some of these key operating expense ratios and set up a path to generate sustainable cash flow going forward. So you'll start to see these show up in Q4. We expect the full cash flow impact of the restructurings to really take full effect by Q2 of 2025. Now, I'm really pleased with the TCV, total contract value bookings in Q3. It's kept up with our current trends recently, but I'm even more encouraged by the mix when you look at some of the positive indicators for growth. Last quarter, we benefited greatly from our legacy managed services. And again, we love this particular part of our business for its contribution to EBITDA, but really the growth indicators are going to come in that the MIPS and the PS. And so again, when you look at those two, the MIPS bookings have been consistent over the last few quarters and it's been consistent sequential growth. Again, versus 2023 where we had a couple of larger big bumps in Q2, this has been a consistent steady increase and we're starting to see more customers participating in our MIPS category. Um, again, even though we may be reporting a modest 7%, uh, year over year decline, um, when you adjust it for some of those, uh, one of those large contracts bookings are actually up 35% year ago, 14% sequentially. So again, good, healthy underlying indicators. And that late stage pipeline, what I can see coming down the pipe, the contracts that I know are under negotiation, those, again, continue to have us believe we're on the right track in that category. We're getting some real traction in some very specific industry segments. So, again, going deeper in what we call ideal customer profiles. Again, we're starting to see some consistency of problem and solution, which has us very optimistic. Again, we're building SKUs in categories that are going to value them. Q3 marked a strong comeback for PS bookings, recording the highest quarter of 2024 at 11.7 million and really, again, up there in the top in the last five or six quarters. PS bookings are up 52% year over year and 24% sequentially. The only thing I'll point out on this is what we're finally starting to see again are longer term contracts. So our clients are now starting to extend beyond what they can see right in front of them. We're getting into six, nine and 12 month contracts. So again, good visibility and visibility for us means better ability to manage bench and all really feeds back to the ability to run a more profitable business with a little bit less volatility. So, again, don't expect to see 11.7 turn into a huge quarter in Q4. Expect it to see smoothed out over multiple quarters. And again, we're happy for that. Our legacy managed services or LMS bookings continues to support total bookings in Q3. Again, the folks keep coming back in this category. We know this is on a curve that will decline over time, but we continue to support and maintain a number of different products that are ending their life. And our customers are still turning to us to help maintain that. those technologies for an extended period of time. Some of those contracts, again, are extending beyond 12 months. So we've got fairly good visibility into the LMS category. And this, as everyone knows, is technologies like Oracle ATG. A few of the other elements inside this category have maybe a little bit longer life than ATG. And we expect, again, to see this take a number of years to fully run off. We are managing it very carefully both for quality of delivery to customer because these are really important customers to us, but also we're really managing them for profitability. I'll wrap up my business update just talking about these four particular areas that I know are of interest, the restructure, the customer trends that we're observing, some product highlights, and the pipeline signals in our sales funnel. So I already mentioned the cost takeout. I won't keep going over that. We know how much was taken out and really the focus on aligning our OPEX spend more closely with our peers. You'll also note in the letter I wrote, there's one particular area we continue to overspend or outspend the ratios that we would find in our peer group, and that's in sales and marketing. That really is to continue to push for moving the top line growth. Gross margins this quarter were affected by some one-time events. Mo's going to discuss those. But the key takeaway from all of this is between the cost takeouts and normalization, we really expect to see margins return to levels we saw in the first half of 2024. And we expect some cash production really to kick into gear in 2025. Some of my observations around client trends, we really are seeing a difference between our B2B and our B2C customers. We do have both, as everyone knows. We have a lot of marquee brands in retail, but we have a growing and very healthy business in B2B, particularly industrial goods manufacturers and distributors. And we've been focusing heavily on some particularly clear and discrete ICPs or ideal customer profiles. The B2C customers that we're focusing on are really optimizing and simplifying their systems. That's the key message. They're aiming to achieve long-term reductions in operational costs and their total cost of ownership through their digital ecosystems. We think there's no surprise that Shopify is performing so well. They hit all those key messages. It's simplified, it's easier to manage, and it's going to cost less than some of the enterprise platforms these bigger customers have been on. We are working with larger enterprise customers as they try to make the shift to our platforms like VTechs and Shopify. B2B customers are investing in channel transformation. And that really is to drive more volume through their digital channels. Data cleanup seems to be the place they're starting. It's essential to unlock revenue opportunities in those channels. But what we're observing is the data cleanup really is a phase one step. Their channels need work. The way that they execute on their sales channels in digital is far behind B2C. It also looks different than B2C. And so it's not just a straight swap of, you know, let's drop an e-commerce platform in. There's some nuance to B2B that is requiring more investment. So long term, we actually see a more comprehensive amount of investment going on in B2B. We see the greatest growth potential in B2B in the near term because they've got the most work to do to transform. Now, what we do find with B2B is it's newer for them. There's a bit of the show me mentality and there's a lot more POC work that goes on in this category, particularly with our SKU build. Some of the value propositions we're demonstrating, you know, folks are unconvinced until they see it. So we spend time showing them the outcomes and showing them the speed with which we can do it. But a lot of the work we're doing in B2B and data starts with POCs now. Our products continue to help differentiate us with our partners, our clients, and our prospects. SKU Build in particular, we have a line of sight to bookings for a large amount of SKU volume that can close this year. We're in POC, as I mentioned. But it really does differentiate us. Our ability to manage and clean data, move data through systems, it does allow us to have conversations around PIM. We're even getting into more of the other verticals like customer, vendor, and location as a result of some of the innovation that we bring into the conversation. Control Tower, we've launched a number of new dashboards this quarter. We're really excited about the number of connectors that have been built. So we had Fluent in order management. We now have VTechs in the commerce space. And we have launched Enterworks Slash Precisely, which is a data health dashboard. Most of these are really proving out the value of observability in these platforms. Our ability to add new platform systems and new connectors can take anywhere from two weeks to a month. And one of the areas I'm really excited about is we are about to bring big commerce on and we have a particular customer who straddles big commerce and fluent. And we really see the opportunity where we can cover multiple platforms in a single customer as a real value driver. One of the biggest things we're hearing is observing order state through multiple systems. And that's our goal now as we, again, launch more dashboards, converging this data, being able to track and follow order state through multiple systems. And finally, the last topic here, pipeline. In Q3, we added close to $12 million of qualified new logo pipeline. That's the highest level of new logo additions since 2022. This is a really important leading indicator for us because this is where growth is going to come from. We're doing particularly well retaining customers and retaining projects that we have. But really, if we're going to grow, it's going to come with new logos, starting a relationship with us. And I think Kyle and the sales team he's been building is really focusing on building that category of pipeline and revenue. And he's off to a great start. There's some great late stage pipeline opportunities in MIPS that could lead to a really strong quarter for us in Q4. I'm going to hesitate to call it at this stage because we've certainly seen some volatility in closings, but we are seeing some things starting to free up and I'm more optimistic that our conversion rates on our pipeline are going to start to grow. So with that, I'll pass it to Mo and he'll take you through some of the financial highlights.

great thanks bill um so switch the revenue slide there we go um so total revenue was 10.1 million in q3 this was down 2.2 million or 11 year-over-year and you can see from the middle part of that chart the primary driver the year year-over-year change was the expected decline from the legacy managed services This segment was down nearly 30% year-over-year as clients continue to migrate away from legacy technology. The MIPS revenue was $3.8 million in Q3. It's a slight sequential decline, but it did decline 14% year-over-year. Last year, we had a short-term SKU Build volume contract come in to ramp up and drive overage for our SKU Build customer, and it benefited Q3 last year. In recent quarters, we also had benefits from overages and additional volumes, and those started to stabilize in Q3. And Q3 is about kind of where we expect to be when you kind of exclude some of those overages that we've been benefiting from. Our professional services revenue was 10.1 million, down 8% sequentially, but up modestly year over year. Q3PS revenues was negatively impacted as revenue was adjusted to align it to progress on fixed fee milestone engagements. And this is really to align our revenue recognition with when we complete milestones, which are expected to be in the following quarters. As Bill mentioned, with the 11.7 million of bookings in Q3, this gives us strong and improved predictability and ability to manage our costs appropriately going into 2025. It builds that backlog. And as he's highlighted, that should not expect this to be a Q4 2024 ramp up in revenue, but it does give us visibility and backlog over the next three to three, four quarters for those bookings. When we look at our gross margins it was 38.7% compared to a prior year's 46.2% and it contained the one-time items and the revenue impact that I mentioned related to fixed fee milestone programs. It's important to highlight this quarter is not indicative of what we should expect going forward as we renegotiated one of the contract extensions and it turned into TNM margin generating project And we're also aligning the revenue with some milestone completions coming in the coming quarters. So we do expect margins to return similar levels as those in the first half of the year. Looking at the chart on the right, we present the adjusted OpEx, which reconciles to the adjusted EBITDA. Adjusted operating expense was 8.1 million. This is about a million improvement over the prior year's 9.1, and it's run leaner versus the Q2 8.7. Obviously, with the restructuring efforts that we've mentioned, we expect this line item to continue to get leaner and contribute to delivering positive EBITDA and cash flow. You should start to see the EBITDA improvement in Q4 as a result of these restructurings and the improved gross margins. Now, turning to the balance sheet, we ended the quarter with cash of about $5.5 million. In Q3, we used about $300,000 of cash from operations, and this chart helps segment it to probably three key buckets. Our core business and core operation used $700,000 of cash, and that's a result of the gross margins and the one-time impacts that we've highlighted. As we discussed the restructuring impact, while we took the charge of $2.3 million, we netted $200,000 of cash outflow. The majority of those payments will be made through Q4 and Q1, after which you should start to see improved cash results. And the working capital, we're managing our accounts receivable really well. We've benefited $600,000 when excluding kind of some of the restructure payables that's not in that number, but it contributed $600,000 of cash. One item that was a bit frustrating, we were expecting a million dollar payment on a key milestone. By the end of Q3, it came three days after the quarter. Otherwise, our cash would have been 6.4, 6.5 million, but we did end up at 5.5. But we did collect that cash. It was a key milestone on an aged whip and milestone. So we're glad to have closed that contract and have collected all the cash right at the start of Q4. So as mentioned, the business continues to manage towards operating cash flow positive, and we believe it will be accomplished with all the changes that we're seeing and some of the pipeline opportunities that we're seeing in later stages. And we're going to continue to support our investments in growth and product within our capacity. As mentioned previously, in addition to the 5.5 cash, we still have access to up to 12 million through our credit facility with National Bank and access to additional accordion as well should we need. I'll turn it back to Bill now for a closing summary.

Thank you, Mo.

Look, obviously never a fun time extracting $8.5 million. of costs from the business. There's a people impact to that and we do have some amazing people. So we're through a very tough period for the company, but we're into the next inning and the next inning looks promising. Again, we're running the business leaner. We're seeing great opportunities with our clients. We're starting to see contracts open up and budgets getting applied. So I'm excited about the team we've got and how hard they're working. And it does seem like we're busier than ever, which should be no surprise. There's fewer people doing some more work. So the team continues to find ways to operate more efficiently. We're seeing those really good leading indicators with our new solutions. And again, the focus for 2025 is execute on solutions. Closing those new logo pipeline initiatives. Again, with the addition of our CRO and a major transformation in our sales team, I really like the direction that they're moving. We're going to invest in the growth of our managed and IP solutions. These are differentiators and they really are helping us stand out in some crowded markets. And as has been the case for some time, we spent a lot of 2024 really setting ourselves up and establishing the right kind of operating expense ratios and COGS in order to deliver EBITDA in cash. And that continues to be paramount for us. So optimistic about how we've set ourselves up for 2025. I'd like to thank everyone for attending the call today. And I look forward to updating you on our progress on the next call. We'll turn it over to Dennis to moderate with our analysts.

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 Max Ingram from Canaccord Genuity.

Hey, guys, how you doing? Good. Thanks for taking my question. So my first question is on the sales and marketing. And you had, Bill, you'd noted in your shareholder letter that, you know, it remains higher than Pure's. And really, as you reorient and build the sales team, that's what's sort of driving that. So it seems to me like a bit of a balancing act. So wondering if you can talk a little bit how you see that evolving over the short to medium term.

Well, I think the key message is we were under-investing in leadership in that group the last 12 months. We've got a leader now. We have confidence in the allocation of capital, yielding better outcomes on bookings, and we've stayed it for some time. Our current average is keeping us where we are. We need to do better than our current average in bookings to start seeing growth. And growth is key. So we're going to overinvest for a period of time. We're going to continue to monitor what our our value creation is through the customer acquisition. And we're looking for efficiency gains, but efficiency gains through better bookings, not through fewer people in sales and marketing. So our CRO has a period of time and he's going to prove that out for us or we'll bring our our sales and marketing dollars in line with our industry peers. But expectation is this is going to yield and acceleration on bookings.

Okay, that's helpful. My second question is on the $12 million of new logo pipeline this quarter, which is great to see. And I assume a big part of that is the sales focus. Can you also touch on if you're seeing some macro improvement? Maybe it's hard to decouple those, but any color would be helpful.

Yeah, look, I think historically we've depended on our partners and maybe again with the way we were structuring some things, we were not engaging with them as effectively as we could. So, you know, Kyle's immediate first few steps were just re-engage our partners more effectively, make sure they understand our differentiators, make sure we're getting share of mind when opportunities present and also doing more coordinated market efforts with our partners. That's been yielding, you know, some good results. I would also tell you that some of the ideal customer profile market segments we're going after, where we're taking a lead, we're now starting to bring our partners along with us. We're seeing some really good activity there. As we get smarter in specific verticals, I think we have more intelligent conversations and we start reaching into a segment that we have more to offer that's specific to their needs. I think this is going to really start to help accelerate our new logos. So our ICP work, both with our partners and direct, is going to start to yield even more than we've already seen.

Great. Thanks for the detail, Bill. I'll pass the line.

Thank you. Our next question comes from John Xiao in National Bank Financial. Please go ahead, John.

Good morning, guys, and thanks for taking my question. I also have a question on that 12 million pipeline addition this quarter. Seems like it's a relatively new metric here. And so Bill, based on your historical numbers, what kind of conversion ratio apply on that 12 million for those pipeline to be eventually converted to future bookings?

Yeah, look, and I think that's a really good question, John. If we were getting the kind of new logo bookings at these levels in the past, we'd probably have more conviction around what the conversion ratio should be. I think the fact that we're starting to crank up again new logo pipeline, we'll start to get better metrics on what those conversions are like. I think it's fair to say conversions on existing customers, extensions, renewals, they tend to be higher, they're more predictable. The new logo pipeline, I think will tend to be below 50% conversions. And ideally, we want to get it as close to 30 to 50% as possible. But these are early days, we need to get that pipeline building, and then we need to get better at converting it. But we're in what I would call the first inning of that. Kyle's increased emphasis and focus. Those are not going to be 100% conversions by any stretch. Where our existing customers, those conversion ratios are much higher, have been over the years. We've been feeding very effectively on the quality of the work we do, leading to more work with existing customers. This is going to be a really important metric for us to monitor going forward.

Okay, thanks for the colors. Bill, you also mentioned B2B business in your letter is that's getting traction there. So for those kind of deals, could you maybe help us understand about the contract size, the sales cycle, and perhaps the margin profile relative to a typical B2C deal?

Yeah, look, a lot of this is happening in the data space, John. And we are seeing fairly large contracts that will start with really small ones and the small ones are POCs. And what they're looking for is proof of quality. You know, that's attribute fill rates. That is accuracy rates. And so we're getting POCs. We have quite a number of them underway right now. The biggest ones are, you know, multiple million SKUs and they are contracts that it can extend from 12 to 24 months. And they're multi-million dollar total contract value contracts. At the lower end of the spectrum, they can be a few hundred thousand. They can run for six months. They'll lead to maintenance type contracts afterwards. Our goal is always between 40% and 50% with the transactional SKUs. And some of the things we're trying to do, reselling SKUs, we expect significant margin expansion if we're selling a SKU from the library instead of running a process to sell the SKU. So I would tell you right now, our process to build and sell SKUs, if you're buying the process, should be between 40% and 60% margins. And if you're going to buy from a library of pre-built SKUs, we should see that margin double.

Okay, got it. And the last question is, as we go into the busy holiday season quarter, do you think we're going to still see the typical tick up in your revenue based on just on a higher customer usage?

You know, I would tell you that a lot of that stemmed from the large legacy managed service commerce base. So as that number comes down, so comes down consumption in that, that category. So yeah, we have the normal bump, but it's a normal bump on a smaller base. Um, and so, you know, I wouldn't expect a massive lift this year because the number of clients in that segment are down, um, quite a bit now, right. It's been a consistent perpetual decline for multiple years as we know. Um, so won't be as big. Uh, well, I don't think it'll be as noticeable. Uh, and again, as we move, uh, further and further away from infrastructure. A lot of the seasonality from the infrastructure was the requirement of long lead items, like putting physical servers in place and increasing capacity and load testing. We've virtualized or moved almost all of our customers now to the cloud. Scaling up and down is a lot easier. There's not as much long lead prep for that. So again, we've been smoothing out that consumption over time.

Okay, thank you. Pass the line.

Thank you. Our next question comes from Daniel Rosenberg at Paradigm Capital. Please go ahead, Daniel.

Hi, good morning. My first question was around the cost saving plans. As you ramp up into Q4 and Q1 and beyond, could you help us understand, you know, is that a linear ramp or what that looks like in terms of hitting the financials?

in terms of the eight and a half and the timing of when that ramp will hit? Is that kind of what's behind the question? Yes, that's correct. Yeah. So I think we're going to start seeing the benefit in Q4 and I think it'll start to accelerate after that. kind of through next year. So between now and Q2 is when you should kind of expect that to start to hit and realize. And I would say, you know, a good portion of it will hit OpEx, but some of it will hit and improve or reduce COGS to either improve our margins or right size it to some of the legacy managed services. So you'll expect to see most of that start to hit in Q4 and then more of it to hit between Q4 and Q2.

Okay, thanks for that. And then on the legacy business, so it's been a few quarters kind of running off at this rate. So is this a fair kind of consistency that you expect in the future? I know in the past there were some extensions and whatnot, but what's your best guess on how that looks like going forward?

Um, I think it's going to be on our, the bookings helped, um, just make sure the bookings helped set us up for Q4 and future quarters as it contains six and, you know, contracts that are six months and beyond. So like PS is, you know, because of that, it starts to stabilize and, uh, and helps avoid the decline that we saw. So that does help stabilize that number and set us on a trajectory to head.

I think Daniel might be asking about the legacy managed services. Is that what you're asking, Daniel? Or are you asking more generally? We're not expecting a decline in PS or others. So I'm assuming you mean the legacy managed services.

Yeah, exactly.

The legacy managed services.

Okay.

Cause I know PS sequentially. Okay. And legacy managed, no, we will expect to continue to decline in that business. So kind of between, between now heading into Q4 and heading into kind of through 2025, we do know that number will go down. Obviously it's a bit of a estimate based on what we're hearing, what we're seeing and readiness of customer. But yes, that number is expected to continue to decline over the coming quarter and year.

But nothing to say on that rate of decline based on your best guess, because, you know, sometimes there were some extensions I remember in the past.

We're still getting extensions, Daniel. And so like it's not if the question is, is it going to zero at the end of the next year? No. With almost 100 percent certainty. We know it's not. You know, I think maybe the question you're asking is it was six point seven million in Q3 last year. So that looks like about, you know, a million eight drop off. Should we expect that million eight year over year? That's probably directionally the rate of decline we're seeing. You saw it slow between Q1 and Q2, didn't really change much. There's definitely some periods that are reflective of when the contracts are ending. You see some little spikes and in between those, you don't see the runoff as much. So this will probably be contract specific that drives which periods you'll see the drop. But $1 to $2 million a quarter year over year, it's probably not a bad estimate.

Okay. I appreciate that color. Um, and then I was curious around kind of the competitive dynamics and how you're positioning with your ideal customer profile. So, you know, what markets, you know, from what you've seen have become more competitive, um, or perhaps, you know, it's the industry that's led to that softness, a macro picture, which we've seen some from some other kind of it service providers, um, I was wondering if you had any commentary around that you could share.

Yeah, so some of the areas we're seeing really good traction is in industrial parts, distributors, manufacturers. In fact, one of the things that happened this quarter that we're really excited about on SKU Build is we acquired a manufacturer of industrial parts in a category that we acquired a distributor. And so there's overlap. The distributor wants the SKUs we're building for the manufacturer and the manufacturer actually wants improved quality of their content with the distributors. As we learn more about those particular segments, we get smarter about their various needs. We understand both of them are trying to drive revenue. And so we start having broader conversations around the whole channel itself, their commerce platform itself. or management, the implications of really a digital transformation in it. So automotive, you know, certain industrial parts. I'm not going to go too deep because if any of my competitors are listening, I don't want competitors chasing me in there. But we're also seeing and probably the most encouraging fact is when we start sitting down with our partners and sharing some of what we're doing they're observing some similarities and they're coming up with industry-specific solutions with their products which now we can take a more complete package forward to them so there's two or three there they tend to be again in b2b that are seeing this comprehensive let's reevaluate our whole digital channel Mostly because we're seeing a transition of generations. You know, the way business is done in those channels is moving into more millennials being responsible for driving outcomes. And they don't do business the same way some of these industries used to do business. So there's a transformation required to match the next generation. On B2C, what I can tell you is I think we've picked the two right platforms that we are partnering deeply with, both in Shopify and in VTechs, because they both represent simplification. We're seeing a number of projects and initiatives now starting to ramp up where, again, these are existing channels. People are doing real revenue in them in B2C, but they're looking to lower their TCO and simplify their ability to run those ecosystems. So that's starting to open up again. Budgets are starting to show up in that category. And I'm pretty pleased with the relationships we've got with both those partners. Again, we represent a point of differentiation. We know how to do large enterprise and those platforms are doing exceptionally well in mid markets. But again, they're starting to see the value of having a large enterprise group like ours that can help navigate more complex implementations. So that again, that channel is really opening up well for us.

Great. Thanks for taking my questions. I'll pass the line.

Thanks, Daniel. Thank you. Our next question comes from Jesse Pitlack, Cormark Securities. Please go ahead.

Hey, good morning. Maybe just to start, kind of a bigger picture question. Bill, if you step back and you think about how you were building this business a few years ago, you obviously built it for a much higher revenue base than you achieved today, considering that you had to go ahead with the cost reduction initiatives this quarter. If you had to maybe break down kind of the different parts that didn't come together the way you thought they would uh you know what would it be what it would be like obviously macro was part of it but is it did the competition turn out to be stronger than you had anticipated it was at the alignment with your go-to-market partners can you maybe just kind of you know unpack some of those different moving parts as to what resulted in you know the business not growing the way you thought maybe two three years ago

I think it's multi-part, Jesse. I certainly think the macros didn't help us, but I think that's a part of the mix. The macros didn't help everybody. And some of our peers certainly outperformed us in what we would call core. So I would say it's a couple of things beyond the macro. One, we did start attempting probably 18 months ago to make a push towards leaning out and driving to stronger, consistent EBITDA. You know, a mistake I made in that area was allowing ourselves to de-emphasize the sales and marketing. We ran without a chief revenue officer for a period of time, and I think that affected our relationships across the board significantly. We weren't paying as much attention consistently as we needed to with our partners. And I think we've been improving that for the last couple of quarters and we're starting to see the results in our pipeline. So that's easily fixed, probably shouldn't have happened in the first place. And I take responsibility for that blip in our sales process. But again, I think that's one we've recovered. I'd say the second part is really to do with our product mix. As we try to transform and push towards a heavier emphasis on product, I think that also took our eye off the ball of our core business. And, you know, it's not uncommon. Early stage product takes longer than you think and costs more. I think we probably expected our products would be further along by now. Um, but the heavy emphasis for 18 months on that, it was also a de-emphasis on our core. So we flipped that around and said, our core business has to be our core business and product is really our future and our upside, but we need to have a much more balanced approach to how we manage those. Um, and I think even culturally, you know, to become more of a product company, there has to be a cultural effort. Uh, but if you overdo it, you also run the risk of alienating your people who, who function in the core business. So, um, this has to be a healthier balance dynamic. And I think that's been the setup we've been doing for again, the last 12 to 18 months with the change in personnel and the way we structure the business. So I think we're in a better position to now accelerate both of those and being able to be more patient with how long product takes. Hopefully that answers your question.

No, that's helpful. Appreciate that. And then, you know, maybe segwaying from that in terms of your R&D spending for 2025, what would be the kind of the priority areas? And I guess how quickly could this spend translate into revenue? And ultimately, what is your willingness to cut back here to achieve your even emerging targets of some of your other savings that you're anticipating are not fully realized?

I would tell you that our discipline is constantly improving around evaluating progress, really understanding leading indicators and telling us whether the investments we're making are paying off. So in R&D on SKU build, there's a lot of work going on with our machine learning and AI capabilities. which are going to bear out in the numbers we track on our cost of acquiring attributes. Historically, it was a very manual process. It's increasingly become a more automated process. And ultimately, the goal and the measure is what does it cost us to acquire an attribute and fill an attribute? We're tracking and monitoring that very closely. And the amount of money we invest in R&D to do that needs to yield some significant changes over the next 12 months. The team knows that. They know that's their metric. That team probably isn't being held accountable so much to go to market. That'll be our CRO's responsibility. But as they drive cost out, increase speed and efficiency, they're going to arm our CRO with more compelling value propositions. So that is being closely tracked. Control Tower, the investment in that is really around more platforms and more connectors. Again, what's exciting for us there, we have a number of partners who don't have good real-time reporting. And so, you know, what's driving this right now is if you have a gap as a platform partner and you don't have a good dashboard, we're now negotiating deals with our partners where they're going to embed that in their offering as resellers. And we should expect to start seeing some acceleration there. in that category now where our partners are leading and bringing our product along. So most of the investment dollars in there are those dashboards, new connectors and adding new features. And again, the measure of best for us there is use. What is the usage by the end customers? And are we seeing evidence of more concurrent users and evidence of more dashboards and more of those microservices being launched and used by our customers? So again, tracking better, seeing good leading indicators. But the ultimate test, as we all know, is what's it doing to the revenue line? So, you know, that at the end of the year will be a real question for us. Is the revenue moving? And if it's not, the leading indicators better tell us it's going to start to hyper accelerate or yes, we will reallocate R&D dollars away from those products.

And then just as a follow up, if I may, you know, the warehouse management product was in mentioned within those priorities. What's kind of the latest on this? It sounds like it's being de-emphasized. Is that a fair characterization?

It's just different, Jesse. It's much longer selling cycles. The beauty of that category is when you land a customer in that segment, they tend to be there for 5, 10 or 15 years. So as you would expect, someone who's making a 5 or 10 year investment just takes longer to make those decisions. I think we're in kind of the 12 month range on a number of the contracts we're negotiating. So, you know, look, you're going to hear some news on it, but we've de-emphasized it just because it's a much longer selling cycle and you're just not going to see the kind of quick hits we can see on SKU building control tower. But very sticky. It's real enterprise software. And it's got some of the world's biggest clients that are now evaluating and in the process of contracting. So we'll keep you posted. But I think we're not talking so much about it because we want to talk about some things after they happen.

Appreciate it. That's all for me. I'll pass the line.

Thanks, Jesse. Looks like we have no further questions. So I'll turn it back to you, Bill.

That's it for me. Thanks, everyone, for attending today. Thank you for taking the time to review the material. And as always, thank you to the analysts for attending, asking their questions and helping educate the rest of the market on what we're up to. So until the next quarter, I hope everyone has a great holiday season.