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E2open closes 1st public year with revenue beat, higher EBITDA

Supply chain software provider E2open wrapped up its first year as a publicly traded company with a review of its performance structured differently than what is found in most earnings reports.

E2open went public in February 2021 through a merger with a special purpose acquisition company. Its report highlighted metrics that are less emphasized in most earnings press releases; regardless, they all were strong. 

Among the highlights that CEO Michael Farlekas spoke about in the company’s fourth-quarter earnings call with analysts:

  • E2open produced almost $480 million in non-GAAP revenue for the full year, which beat its guidance by more than $4 million. 
  • Organic growth in its core subscription business for the year was 9.8%, and total organic growth was 11%. 
  • Adjusted EBITDA for the full year was $163 million, with an EBITDA margin of roughly 34%, which was an increase of 13%.
  • Traditional measures are in the earnings report as well. E2open had adjusted earnings per share of 8 cents in the fourth quarter and 24 cents for the full year. For the quarter, GAAP revenue was $144.2 million. Total non-GAAP revenue was $150.6 million. 

In his comments during the call, CFO Jarett Janik, who is retiring from his position with the company, said E2open’s trailing 12-month gross subscription retention rate was 95%. He also said the trailing 12-month net subscription retention rate was 108% and noted that the net subscription retention rate includes upsells, which would explain the rate in excess of 100%.

(Separately, E2open announced that Marje Armstrong would become the company’s CFO. She previously served as vice president of finance at Dropbox.)

The company has experienced explosive growth the past few months, just yesterday releasing strong fourth quarter and fiscal 2022 results. Recent geopolitical conflict and continued global COVID strain has not only escalated the value of supply chain platforms like E2open but has catapulted it to a pivotal growth stage as a public company. With over 20 years of experience, Marje will play a key role in helping E2open further scale its business.

Marje previously served as VP of finance at Dropbox, Inc.

Farlekas described E2open as a Rule of 40 company. The Rule of 40 is a benchmark for software-as-a-service companies and it holds that a company should have a combination of revenue growth plus profitability margin exceeding 40%. The growth plus EBITDA margin at E2open would put it in excess of that figure. 

But Farlekas also said that for fiscal 2023, E2open considers itself a Rule of 45 company and is now “taking aim to be a Rule of 50 company.”

Despite the bullish forecast and the positive economic numbers, E2open’s stock has had a rough year. It is down almost 30% in the last 52 weeks — which is most of its time as a public company — and is lower by 22% in the last month.

Farlekas said 90% of E2open’s subscription revenue for fiscal 2023, which began March 1, already is under contract “and the pipeline is the largest we have ever seen,” according to a transcript of the call provided by Seeking Alpha. “Our subscription revenue is accelerating faster than our services revenue sooner than we expected.” 

E2open acquired Blujay Solutions, which also is a logistics platform, last September for $1.7 billion. Janik said synergies coming out of that acquisition will top the original estimate of $25 million, and 80% of those have been realized already. 

The company also went deeper into the parcel business in early March with the acquisition of Logistyx. But that would have been after the close of the fourth quarter on Feb. 28. 

Farlekas said that “now is the time to invest, not pull back,” and E2open is increasing its planned investment in sales, marketing and channel development by $20 million. 

“Given the very long-duration relationships we have, decades long for our largest clients, the return profile is extremely favorable for incremental investment and growth,” he said on the analysts’ call. 

Farlekas described the opportunity in front of E2open as based on his view that “the digital infrastructure that supports today’s supply chains are largely on-premise, siloed and largely legacy.

“We are in the very early innings of the replacement of that infrastructure with a cloud-native infrastructure.” 

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