CVO:CC - Coveo Reports Second Quarter Fiscal 2024 Financial Results

SaaS Subscription Revenue ^{( 1)} grew 15% year-over-year to $29.4 million
Reports second consecutive quarter of positive cash flows from operating activities and Adjusted Operating Loss ^{( 2 )} well ahead of guidance
Coveo Relevance Generative Answering™ general availability expected in December, with continued strong early demand from customers

Coveo reports in U.S. dollars and in accordance with International Financial Reporting Standards (“IFRS”)

MONTREAL and SAN FRANCISCO, Nov. 06, 2023 (GLOBE NEWSWIRE) -- Coveo (TSX: CVO), a leading provider of enterprise AI platforms that enable individualized, connected, and trusted digital experiences at scale with semantic search, AI recommendations, and GenAI answering, today announced financial results for its second quarter of fiscal 2024 ended September 30, 2023.

“It continues to be an exciting time for the company,” said Louis Têtu, Chairman and CEO of Coveo. “Since the launch of Coveo Relevance Generative Answering ^TM in the first quarter, we’ve seen promising results from early adopters within our existing customer base, including leading companies like Xero, as we move towards its general availability in December. Interest in our enterprise-grade generative AI offering continues to be high, and we believe we have a tremendous opportunity to capitalize on our proven, trusted, and leading AI platform to deliver significant value to our enterprise customers.”

Second Quarter Fiscal 2024 Financial Highlights
_{(All comparisons are relative to the three-month period ended September 30, 2022, unless otherwise stated)}

• SaaS Subscription Revenue ^{( 1)} of $29.4 million compared to $25.5 million, an increase of 15%.
• Total revenue was $31.2 million compared to $27.9 million, an increase of 12%.
• Gross margin was 78%, an increase of 2%, and product gross margin was 82%, consistent with last year.
• Operating loss was $10.2 million, an improvement compared to $11.6 million, and Adjusted Operating Loss ^{( 2 )} was $1.0 million, a significant improvement compared to $4.7 million.
• Net loss was $6.5 million compared to net loss of $9.9 million.
• Cash flows from operating activities were $0.8 million for the quarter and $1.8 million for the first 6 months of fiscal 2024.
• Cash and cash equivalents were $167.8 million as of September 30, 2023.
• The company completed the purchase of 3,706,194 of its subordinate voting shares (including 480,000 multiple voting shares on an as-converted basis) at C$8.50 per share under its substantial issuer bid (the “SIB”) launched May 30, 2023, for an aggregate purchase price of approximately $23.8 million (C$31.5 million). On July 17, 2023, Coveo also launched a normal course issuer bid (the “NCIB”, and together with the SIB, the “Repurchase Transactions”) to purchase for cancellation up to 2,559,247 subordinate voting shares of the company over the twelve-month period ending on July 16, 2024. During the second quarter of fiscal 2024 ended September 30, 2023, Coveo purchased for cancellation a total of 940,000 securities under the NCIB, for aggregate consideration of $6.7 million, and a total of 4,646,194 securities repurchased for aggregate consideration of approximately $30.4 million (C$38.2 million) under the Repurchase Transactions during the quarter.

Second Quarter Fiscal 2024 Business Highlights

• Net Expansion Rate ^{( 1 )} of 106% as of September 30, 2023. Net Expansion Rate was 111% excluding customer attrition from customers using certain deprioritized legacy Qubit product capabilities ^{( 3 )} .
• The company signed its first five order forms for Coveo's enterprise-ready Relevance Generative Answering™, an extension of its AI platform that combines Large Language Model (“LLM”) technology with secure indexing and AI relevance capabilities. Coveo Relevance Generative Answering™ is now live across Coveo’s own customer self-service experiences, and Xero also became the first Coveo customer to go live with the solution for self-service.
• Coveo and Caleres earned the Best Personalized Shopping Experience award at the 2023 Glossy Fashion Awards. Caleres, a global footwear company, implemented Coveo’s AI platform across its branded websites, enhancing the shopping experience with AI-driven search and personalized product recommendations. This significantly improved product discovery and boosted search-driven revenues, reflecting a focus on modernizing the digital shopping experience.
• Coveo won the 2023 Cyber Security Award for Most Innovative Digital Experience Cloud-Native AI Platform. Coveo's AI platform is designed to meet strict security requirements, including HIPAA, AICPA SOC 2 Type II, and ISO27001. This award reinforces Coveo's position as a trusted provider of secure generative AI solutions for enterprises globally.
• Customers named Coveo Best Enterprise Search Vendor for the third consecutive year in SoftwareReviews’ 2023 Emotional Footprint Report. The recognition reflects Coveo's excellence in customer satisfaction, with high ratings in respectfulness, efficiency, security features, productivity, client-friendliness, time-saving, and trustworthiness.
  

Subsequent Highlights

• Coveo announced more than 15 innovations to its platform, enhancing digital experiences across commerce, service, website, and workplace applications. These advancements solidify Coveo’s position as a leader and enable enterprises to excel in an ever-evolving digital landscape. These comprehensive updates comprise cutting-edge AI and generative AI models for better customer experiences and business outcomes. They expand interoperability with connectors and integrations, empower business users with modern UI frameworks, accelerate development with full-stack tools, and ensure enterprise-grade security and resiliency.
• Coveo announced early access to Coveo Relevance Generative Answering™ for B2B and B2C commerce enterprises , offering them an enterprise-scale generative answering solution for commerce. This innovation, part of Coveo's semantic search and AI recommendations platform, empowers customer experiences with AI-driven question-answering capabilities, fostering customer engagement and knowledge discovery in Ecommerce.

Financial Outlook

The company continues to demonstrate operating efficiency and is improving its guidance on annual Adjusted Operating Loss. While we are encouraged by the overall interest in our AI platform, we observed delays in customer purchasing decisions, and the macroeconomic environment continues to be challenging, with both of these factors impacting new bookings and the related services revenue. Additionally, a portion of the anticipated churn from certain legacy Qubit customers occurred earlier in the year than previously expected.

In light of this, Coveo now anticipates SaaS Subscription Revenue ^{( 1)} , Total Revenue, and Adjusted Operating Loss ^{( 2 )} to be in the following ranges:

Following two consecutive quarters of positive cash flows from operating activities, the Company is ahead of its previous commitment to achieve positive operating cash flow in its next fiscal year (fiscal 2025).

These guidance ranges, including the timing to achieve positive operating cash flow, are based on several assumptions, including the following, in addition to those set forth under the “Forward-Looking Information” section below:

• Achieving expected levels of sales of SaaS subscriptions to new and existing customers, including timing of those sales, as well as expected levels of renewals of SaaS subscriptions with existing customers.
• Achieving expected levels of implementations and other sources of professional services revenue.
• Maintaining planned levels of operating margin represented by our Adjusted Gross Profit Measures ^{( 2 )} and Adjusted Gross Margin Measures ^{( 4 )} .
• Expected financial performance as measured by our Adjusted Operating Expense Measures ^{( 2 )} and Adjusted Operating Expense (%) Measures ^{( 4 )} .
• Stabilization of ongoing headwinds, including those related to economic and geopolitical factors, impacting sales cycles, pricing, and the ability to generate new business.
• Our ability to attract and retain key personnel required to achieve our plans.
• Similar foreign exchange rates, inflation rates, interest rates, customer spending, and other macro-economic conditions.
• Our financial outlook does not include the impact of acquisitions that may be announced or closed from time to time.

These statements are forward-looking and actual results may differ materially. Coveo’s outlook constitutes “financial outlook” within the meaning of applicable securities laws and is provided for the purpose of, among other things, assisting the reader in understanding the company’s financial performance and measuring progress toward management’s objectives, and the reader is cautioned that it may not be appropriate for other purposes. Please refer to the “Forward-Looking Information” section below for additional information on the factors that could cause our actual results to differ materially from these forward-looking statements and a description of the assumptions thereof.

* * * * *

Q2 Conference Call and Webcast Information

Coveo will host a conference call today at 5:00 p.m. Eastern Time to discuss its financial results for its second quarter fiscal year 2024. The call will be hosted by Louis Têtu, Chairman and CEO, and other members of its senior leadership team.

Non-IFRS Measures and Ratios

Coveo’s unaudited condensed interim financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board. The information presented in this press release includes non-IFRS financial measures and ratios, namely (i) Adjusted Operating Loss; (ii) Adjusted Gross Profit, Adjusted Product Gross Profit, and Adjusted Professional Services Gross Profit (collectively referred to as our “Adjusted Gross Profit Measures”); (iii) Adjusted Gross Margin, Adjusted Product Gross Margin, and Adjusted Professional Services Gross Margin (collectively referred to as our “Adjusted Gross Margin Measures”); (iv) Adjusted Sales and Marketing Expenses, Adjusted Research and Product Development Expenses, and Adjusted General and Administrative Expenses (collectively referred to as our “Adjusted Operating Expense Measures”); and (v) Adjusted Sales and Marketing Expenses (%), Adjusted Research and Product Development Expenses (%), and Adjusted General and Administrative Expenses (%) (collectively referred to as our “Adjusted Operating Expense (%) Measures”). These measures and ratios are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures and ratios are provided as additional information to complement IFRS measures by providing further understanding of the company’s results of operations from management’s perspective.

Accordingly, these measures and ratios should not be considered in isolation nor as a substitute for analysis of the company’s financial information reported under IFRS. Adjusted Operating Loss, the Adjusted Gross Profit Measures, the Adjusted Gross Margin Measures, the Adjusted Operating Expense Measures, and the Adjusted Operating Expense (%) Measures are used to provide investors with supplemental measures and ratios of the company’s operating performance and thus highlight trends in Coveo’s core business that may not otherwise be apparent when relying solely on IFRS measures and ratios. The company’s management also believes that securities analysts, investors, and other interested parties frequently use non-IFRS measures and ratios in the evaluation of issuers. Coveo’s management uses and intends to continue to use non-IFRS measures and ratios in order to facilitate operating performance comparisons from period to period, and to prepare annual operating budgets and forecasts.

See the “Non-IFRS Measures” section of our latest MD&A, which is available under our profile on SEDAR+ at www.sedarplus.ca for a description of these measures. Please refer to the financial tables appended to this press release for a description of such measures and a reconciliation of (i) Adjusted Operating Loss to operating loss; (ii) Adjusted Gross Profit to gross profit; (iii) Adjusted Product Gross Profit to product gross profit; (iv) Adjusted Professional Services Gross Profit to professional services gross profit; (v) Adjusted Sales and Marketing Expenses to sales and marketing expenses; (vi) Adjusted Research and Product Development Expenses to research and product development expenses; and (vii) Adjusted General and Administrative Expenses to general and administrative expenses.

Key Performance Indicators

This press release refers to “SaaS Subscription Revenue” and “Net Expansion Rate”, which are operating metrics used in Coveo’s industry. We monitor such key performance indicators to help us evaluate our business, measure our performance, identify trends, formulate business plans, and make strategic decisions. These key performance indicators provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors, and other interested parties frequently use industry metrics in the evaluation of issuers. Our key performance indicators may be calculated in a manner different than similar key performance indicators used by other companies.

“SaaS Subscription Revenue” means Coveo’s SaaS subscription revenue, as presented in our financial statements in accordance with IFRS.

“Net Expansion Rate” is calculated by considering a cohort of customers at the end of the period 12 months prior to the end of the period selected and dividing the SaaS Annualized Contract Value (as defined below) attributable to that cohort at the end of the current period selected, by the SaaS Annualized Contract Value attributable to that cohort at the beginning of the period 12 months prior to the end of the period selected. Expressed as a percentage, the ratio (i) excludes any SaaS Annualized Contract Value from new customers added during the 12 months preceding the end of the period selected; (ii) includes incremental SaaS Annualized Contract Value made to the cohort over the 12 months preceding the end of the period selected; and (iii) is net of the SaaS Annualized Contract Value from any customers whose subscriptions terminated or decreased over the 12 months preceding the end of the period selected.

“SaaS Annualized Contract Value” means the SaaS annualized contract value of a customer’s commitments calculated based on the terms of that customer’s subscriptions, and represents the committed annualized subscription amount as of the measurement date.

Please also refer to the “Key Performance Indicators” section of our latest MD&A, which is available under our profile on SEDAR+ at www.sedarplus.ca , for additional details on the abovementioned key performance indicators.

Forward-Looking Information

This press release contains “forward-looking information” and “forward-looking statements” within the meaning of applicable securities laws, including with respect to Coveo’s financial outlook on SaaS Subscription Revenue, Total Revenue, and Adjusted Operating Loss for the three months ending September 30, 2023 and the year ending March 31, 2024 and expectations and timing around achieving positive operating cash flow, as well as statements around demand for Coveo Relevance Generative Answering and its expected general availability in December 2023 (collectively, “forward-looking information”). This forward-looking information is identified by the use of terms and phrases such as “may”, “would”, “should”, ”could”, “might”, “will”, “achieve”, “occur”, “expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe”, “continue”, “target”, “opportunity”, “strategy”, “scheduled”, “outlook”, “forecast”, “projection”, or “prospect”, the negative of these terms and similar terminology, including references to assumptions, although not all forward-looking information contains these terms and phrases. In addition, any statements that refer to expectations, intentions, projections, or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates, and projections regarding future events or circumstances.

Coveo’s financial outlook on SaaS Subscription Revenue, Total Revenue, and Adjusted Operating Loss also constitutes “financial outlook” within the meaning of applicable securities laws and is provided for the purposes of assisting the reader in understanding the company’s financial performance and measuring progress toward management’s objectives and the reader is cautioned that it may not be appropriate for other purposes. Please refer to “Financial Outlook” above for more information.

Forward-looking information is necessarily based on a number of opinions, estimates, and assumptions (including those discussed under “Financial Outlook” above and those discussed immediately hereunder) that we considered appropriate and reasonable as of the date such statements are made. Although the forward-looking information contained herein is based upon what we believe are reasonable assumptions, actual results may vary from the forward-looking information contained herein. Certain assumptions made in preparing the forward-looking information contained in herein include, without limitation (and in addition to those discussed under “Financial Outlook” above): our ability to capitalize on growth opportunities and implement our growth strategy; our ability to attract new customers, both domestically and internationally, expand our relationships with existing customers, and have existing customers renew their subscriptions; the success of our efforts to expand our product portfolio and market reach; our ability to maintain successful strategic relationships with partners and other third parties; market awareness and acceptance of enterprise AI solutions in general and our products in particular; our future capital requirements; the available liquidity under our revolving credit facility; the accuracy of our estimates of market opportunity, growth forecasts, and expectations and timing around achieving positive operating cash flow; our success in identifying and evaluating, as well as financing and integrating, any acquisitions, partnerships, or joint ventures; our ability to execute on our expansion plans; the significant influence of our principal shareholders; our ability to convert pipeline into closed deals, and the timeframe thereof; international wars and conflicts; and the future impact of any worsening of the COVID-19 pandemic. Moreover, forward-looking information is subject to known and unknown risks, uncertainties, and other factors, many of which are beyond our control, that may cause the actual results, level of activity, performance, or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to macro-economic uncertainties and the risk factors described under “Risk Factors” in the company’s most recently filed Annual Information Form and under “Key Factors Affecting our Performance” in the company’s most recently filed MD&A, both available under our profile on SEDAR+ at www.sedarplus.ca . There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, prospective investors should not place undue reliance on forward-looking information, which speaks only as of the date made.

Moreover, we operate in a very competitive and rapidly changing environment. Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information.

You should not rely on this forward-looking information, as actual outcomes and results may differ materially from those contemplated by this forward-looking information as a result of such risks and uncertainties. Additional information will also be set forth in other public filings that we make available under our profile on SEDAR+ at www.sedarplus.ca from time to time. The forward-looking information provided in this press release relates only to events or information as of the date hereof, and is expressly qualified in their entirety by this cautionary statement. Except as required by law, we do not assume any obligation to update or revise any forward-looking information, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

About Coveo

Coveo powers the digital experiences of the world’s most innovative brands serving millions of people and billions of interactions across every digital experience. After a decade of enriching our market-leading platform with forward-thinking global enterprises, we know what it takes to gain a trusted AI-experience advantage.

We strongly believe that the future is business-to-person, that experience is today’s competitive front line, a make or break for every business.

For enterprises to achieve this AI-experience advantage at scale, it is imperative to have an Enterprise Spinal and composable ability to deliver AI semantic search and generative experiences at each customer and employee interaction.

Our single SaaS AI platform and robust suite of AI & GenAI models are designed to transform the total experience from CX to EX across websites, ecommerce, service, and workplace. Powering individualized, trusted, and connected experiences across every interaction to delight customers and augment employees, and drive superior business outcomes.

Our platform is certified ISO 27001 certified, HIPAA compliant, SOC2 compliant, and 99.999% SLA resilient. We are a Salesforce Summit ISV Partner, an SAP® Endorsed App, and an Adobe Gold Partner.

Coveo is a trademark of Coveo Solutions, Inc.

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Contact Information

Paul Moon
Head of Investor Relations
investors@coveo.com

Kiyomi Harrington
Director, PR, Social and Corporate Communications
kharrington@coveo.com