Release Date: July 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- E2open Parent Holdings Inc (ETWO, Financial) has made notable progress in repositioning the company for sustainable organic growth by emphasizing client-centricity and selling differentiated solutions.
- The company has a strong client base, including many of the world's largest and best-known companies, which provides a large, readily accessible source of whitespace growth opportunities.
- E2open Parent Holdings Inc (ETWO) has implemented a disciplined approach to retention management, resulting in a meaningful margin ahead of internal ARR retention targets for Q1.
- The company has a comprehensive software management platform that combines networks, data, and applications, making it well-positioned to capture a fast-growing market opportunity.
- E2open Parent Holdings Inc (ETWO) has seen significant improvements in client satisfaction and delivery, which are expected to drive future growth and reduce churn rates.
Negative Points
- Q1 revenue results did not reflect the material change in focus, with subscription revenue declining by 2.6% year over year.
- Delays in the timing of deal closures prevented the company from delivering upside in Q1, impacting subscription bookings and revenue.
- Professional services revenue declined by 21.6% year over year due to the reallocation of resources to non-billable client investments.
- The company experienced a peak quarterly level of churn in Q1, which has negatively impacted financial performance over the last six quarters.
- Q2 subscription revenue guidance reflects a decline of 4.3% to 2.0% year over year, indicating ongoing challenges in achieving immediate revenue growth.
Q & A Highlights
Q: Can you give more specifics on what gives you confidence in churn improvement throughout the year?
A: We have reviewed every account over a low threshold with client teams and managers, and in many cases, the clients themselves. This new process involves managing renewals account-by-account, using leading indicators and analytics to proactively address potential issues. This disciplined approach gives us confidence in our churn improvement.
Q: Could you talk about the resource reallocation away from professional services and its impact?
A: We made additional investments with clients to solve issues causing dissatisfaction and putting accounts at risk. This proactive approach led to material renewals and improved client satisfaction without negatively impacting other clients' implementations.
Q: Do you expect deal closure delays to continue throughout the year?
A: We don't focus on macro-related issues but on accelerating deal cycles through executive-level engagement and demonstrating quantifiable business value. We have seen significant improvements in client engagement and deal velocity, and we don't expect delays to be a major issue going forward.
Q: Can you provide more detail on the non-billable work done for customers and its positive results?
A: We accelerated resource allocation to ensure timely project implementations, resulting in contract extensions and additional product sales. For example, we provided upgrade services for free to secure a long-term relationship with a large client. These investments have improved client satisfaction and retention.
Q: What caused the deal delays in Q1, and how do you expect subscription billings growth to trend throughout the year?
A: Deal delays were due to clients' extended decision cycles, not systemic issues. We have already closed many delayed deals in Q2. Subscription billings growth should improve in the second half of the year as bookings and churn metrics improve.
Q: Why does the Q2 subscription revenue guidance imply a quarter-over-quarter decline despite expected churn and bookings improvements?
A: The Q2 guidance reflects the impact of Q1 deal delays and peak churn. As bookings and churn improve, we expect revenue acceleration in the second half of the year.
Q: What gives you confidence that deal delays won't be an issue going forward?
A: We have made significant changes to our organization and pipeline management, focusing on high-quality opportunities and client engagement. Our June deal closures validate our confidence in winning deals and maintaining momentum.
Q: Do you believe the firm needs another investment cycle to improve sales execution?
A: It's more about a cultural shift towards client-centricity rather than a dollar investment. We are focusing on delighting clients, delivering flawless implementations, and demonstrating measurable value, which should drive growth without needing significant additional investments.
Q: How might Blue Yonder's acquisition of One Network change the competitive landscape?
A: It validates the robust demand for multi-tier supplier collaboration. While Blue Yonder will be a formidable competitor, our unique solutions and strong client relationships position us well. Their network is smaller and less complex, so we remain confident in our differentiation.
Q: Is Q1 the peak level of churn, and how do you expect churn to trend?
A: We expect a material step-down in churn in each of the next three quarters, with more improvement on the early side. This confidence is based on our detailed account-by-account review and proactive management.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
