As one of the larger publicly traded companies that provide supply chain software to the freight sector, the e2open quarterly earnings report and call with analysts represent a pair of events that can provide insight into the state of that highly competitive market.
While the financial performance for e2open (NYSE: ETWO) in the quarter ended Nov. 30 was strong, management comments on its earnings call Monday, mostly by CEO Michael Farlekas, indicated the level of business is slowing, though not dramatically.
In language most similar companies would likely use, e2open in its 10-K filing with the Security and Exchange Commission last year described its business as a software offering that “combines networks, data and applications to provide a deeply embedded, mission-critical platform that allows clients to optimize their channels and supply chains by accelerating growth, reducing costs, increasing visibility and driving improved resiliency.”
In that same filing, e2open provided a list of other companies it believes are in its “peer group.” That includes Manhattan Associates (NASDAQ: MANH) and SPS Commerce (NASDAQ: SPSC).
E2open’s history as a public firm dates back to 2021, when in a successful special purpose acquisition company launch, CC Neuberger Holdings I, a joint entity put together by the Wall Street firm of Neuberger Berman and CC Capital, acquired e2open.
In the third fiscal quarter, e2open recorded total revenue of $164.9 million, up from $137 million in the corresponding quarter of 2021. But in the subscription services for its software-as-a-service products, the heart of the e2open business, revenue rose to $134.9 million from $107 million.
The balance of the company is described as “professional services and other,” and its revenue actually declined slightly year over year (y/y) to a little more than $30 million in both years.
On a net income basis, e2open rose to $17.3 million from a loss of $81.3 million a year earlier. But acquisition expenses impacted that figure. E2open closed on the acquisition of BluJay in the third quarter of 2021, a $1.2 billion purchase that brought it a company described as focusing on “logistics execution.”
Looking forward, e2open lowered its forward guidance by a small amount. Its guidance now on subscription revenue for fiscal 2023 is $542 million to $545 million. In the second-quarter earnings report, the company had projected $535 million to $543 million. So the bottom end came up and the top end came down.
In taking questions from analysts, Farlekas described the current market as “choppy.” During times like that, completed deals “become harder to get over the finish line,” he said.
Farlekas expressed optimism that the slowdown the company is seeing is temporary.
“I think the deals don’t really go away,” said the CEO, according to a transcript of the earnings call. “You either win them, you lose them or they get put off until some period in the future. You have to remember, the reason they put our software in is to fix things for the next 10 years. So many times, we’ll say, well, not this quarter. We’ll see what happens. It’s just that they get a stop based on whatever their financial objectives are, whatever they can tackle at a certain time.”
In addition to the BluJay acquisition last year, e2open acquired Logistyx Technologies, which focuses on parcel and small product deliveries. That purchase was announced in early March.
Asked during the call whether e2open was in the market for further purchases, Farlekas said new deals are “going to be a little bit on pause for a while, primarily because the bid-ask spreads are still not where we’d like them.”
During the earnings call, CFO Marje Armstrong said Logistyx has “been a drag on the services revenue due to free service hours as we transition certain clients to our cloud platform.” Armstrong said the company expected “the trend to improve” in fiscal 2024, which for e2open starts March 1.
E2open’s stock price is “undervalued in the marketplace,” Farlekas said. That would foreclose the possibility of using new stock to make an acquisition, Farlekas suggested, because “issuing shares at this point wouldn’t be right for us to do for ourselves and for our shareholders.”
In the past 52 weeks, e2open stock is down 44.5%, according to Barchart.
In other highlights from the earning report:
- E2open’s earnings before interest, taxes, depreciation and amortization margin in Q3 was 34%. In the previous quarter, it was 30.1%. Adjusted EBITDA of more than $56 million was described as a record.
- Whereas most companies don’t like to identify their customers — and will go so far as to use obtuse language to describe a key customer even when everybody knows who they’re talking about — e2open was upfront about some of its new deals. The company said it signed “an expansive contract” with clothes retailer Hugo Boss (OTC: HUGPF) that will “leverage our network and applications to optimize and manage internal and outsourced manufacturing.” It was more mysterious in describing its other big deal of the quarter, which it said was with “a global agribusiness innovator.”
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