E2open Parent Holdings, Inc. (NYSE:ETWO) Q4 2024 Earnings Call Transcript

E2open Parent Holdings, Inc. (NYSE:ETWO) Q4 2024 Earnings Call Transcript April 29, 2024

E2open Parent Holdings, Inc. beats earnings expectations. Reported EPS is $0.05, expectations were $0.044. ETWO isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to the E2open Fourth Quarter and Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Dusty Buell. You may begin.

Dusty Buell: Good afternoon, everyone. At this time, I would like to welcome you all to the e2open fiscal fourth quarter and full-year 2024 earnings conference call. I am Dusty Buell, Head of Investor Relations here at e2open. Today’s call will include recorded comments from our Chief Executive Officer, Andrew Appel; our Chief Commercial Officer, Greg Randolph; and our Chief Financial Officer, Marje Armstrong. Following those comments, we’ll open the call for a live Q&A session. A replay and transcript of this call will be available on the Company’s Investor Relations website at investors.e2open.com. Information to access this replay is listed in today’s press release, which is also available on our Investor Relations website.

Before we begin, I’d like to remind everyone that during today’s call, we will be making forward-looking statements regarding future events and financial performance, including guidance for our fiscal first quarter and full-year 2025. These forward-looking statements are subject to known and unknown risks and uncertainties. E2open cautions that these statements are not guarantees of future performance. We encourage you to review our most recent reports, including our 10-K or any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. And finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events.

Also during today’s call, we’ll refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are included in today’s earnings press release, which can be viewed and downloaded from our Investor Relations website at investors.e2open.com And with that, we’ll begin by turning the call over to our CEO, Andrew Appel.

Andrew Appel: Thank you, Dusty, and thanks to everyone for joining today’s call. I’ll begin with some thoughts on the state of the business and our strategy for returning e2open to strong sustainable organic growth. I’ll then ask Greg to update you on the work he is leading in our commercial organization. And finally, Marje will review our fiscal fourth quarter and full-year ‘24 financial results and provide our fiscal ‘25 guidance. Then we will open up the call to questions. Overall, our revenue results for the fiscal fourth quarter were solid and in-line with expectations we have previously shared with you. And, we continue to perform well on profitability and cash flow. I’m pleased to say that the Company has shown improved operational execution in a number of key areas, including client engagement and sales conversion.

And importantly, we’ve made progress implementing our plan to reaccelerate organic growth that we previewed on last quarter’s call. We are on the right track. And during the quarter, we saw tangible evidence of this in key areas. While we still have work to do over the coming quarters, we have identified the key issues and I’m confident we can address them in a reasonable timeframe. As we move forward, we have many reasons for optimism. Global supply chain volatility is providing a strong tailwind of demand for our highly differentiated supply chain solutions. This provides an attractive market opportunity for e2open, which we are well-positioned to capture. We have the privilege of working with the world’s largest and most important companies on activities that are absolutely core to their operations, how they make, move and sell their products.

We are long-term partners to these industry leaders as they transform their supply chains to increase visibility, flexibility and efficiency. Our mission is clear, to use our platform to deliver enduring value and measurable impact to our clients. To put it simply, our client success determines our success. What enables e2open to serve our clients with distinction is our broad software capabilities accessible through a single interface, powered by the industry’s largest partner network and robust applications spanning the entire supply chain. Uniquely in our industry, our platform links complex channel management to demand and supply planning and integrates those activities with multimode logistics and multi-tier manufacturing. And, we do this collaboratively in real-time across a diverse set of channels, distributors, retailers, suppliers, logistics service providers and trade and customs agencies.

Industry analysts consistently recognize the strength of our software. In December, e2open was selected as a leader for the third consecutive time by IDC in the category of Multi-Enterprise Supply Chain Commerce Network Providers. And in April, e2open’s cloud-based multi-tenant Transportation Management Solution was again named the leader by Gartner. Our leadership is also apparent from the prominent role our platform plays in powering global supply chains. For years, e2open’s products have been deeply embedded across the Fortune 1,000 universe of companies that carry out a large share of global commerce. Here are just a few of the metrics to illustrate this point. Our platform now has 480,000 connected parties and processes 16 billion supply chain transactions annually.

Our logistics ecosystem handles 21% of all ocean freight bookings. Our global trade solution provides trade compliance and import-export capabilities in 230 global jurisdictions and performs 67 billion annual restricted party screenings. Our channel applications manage $14 billion of incentive payments a year for more than a 1 million connected channel partners and resellers. And, our supplier collaboration software enables 155 million annual orders and 59 million annual shipments across multiple tiers of our customers’ extended supply networks. Given the scale of e2open’s impact, it is clear why our platform is so well-regarded. But as a CEO, I was passionate about client relationships, I believe the highest recognition is when a major global company selects us to provide mission critical software.

In the fourth quarter, we once again closed several large subscription deals with major companies in diverse areas such as consumer goods manufacturing, retail, electronic component distribution, and healthcare. These wins often, if not always in highly competitive situations validate the strength and the uniqueness of our portfolio and the dedication of our people. They show that the world’s leading companies continue to trust e2open to lead complex supply chain projects and deliver unmatched operational impact and value. And, they demonstrate that when we go to market with distinctive solutions backed by a client-centric impact-orient and selling approach, we make it very difficult for a customer not to select e2open. For my entire career, I have made client-centricity a top priority, and I have brought the same approach to e2open.

Just last week, I took part in e2open’s annual Connect Europe event in Amsterdam along with 175 of our most important clients and partners. During the three-day event, I attended customer led sessions that highlighted the pivotal role of e2open software in addressing complex supply chain needs at some of the world’s leading companies. I had the privilege of meeting with seven or eight of our larger clients and implementations in progress, and I was pleased to come back with a view that we’re doing distinctive work that we’re talking about impact and value and that we’re on-track to deliver some terrific solutions and extend those relationships. In fact, in conversations I have had with dozens of clients since becoming e2open’s Interim CEO seven months ago, what stands out most is the unique and distinctive value our products deliver.

In large part, this is what convinced me to accept the permanent CEO role in March of this year. For example, multiple customers of our planning solution have achieved a 30% reduction in inventory related working capital costs. A major consumer goods client has used our global trade application to increase its utilization of free trade agreements by 600%. While a global parcel carrier uses this application to fully automate customs filings in 22 countries on a single interface. A leading transportation company using our logistics applications has reduced in process shipment times by more than a third. And, an iconic technology supplier using our supply solution has reduced expedite costs when fulfilling customer orders by 11%. Clearly e2open is a highly value partner to companies that use our products.

Communicating this distinctive value clearly and delivering it consistently in everything we do are the themes that I will personally drive as CEO. Meanwhile, we will continue to invest in our long-term product vision. Just last week, we announced our first major product launch of fiscal ‘25, which is a new supplier network discovery capability within our supply family of applications. In addition, each quarter, we roll out new features across our platform, which we have done for six years. Following a predictable time table of delivering innovations is highly valued by our clients. Our global trade management solution is a prime example of this. E2open’s global trade solution combines a best-in-class application with the industry’s most complete proprietary trade content database.

And, our worldwide staff of over 200 personnel monitors trade rules across 230 global trade jurisdictions and updates our global knowledge repository for any changes. This combination of an application and data is a major differentiator for e2open. And, in the volatile arena of global trade, real-time data empowers our customers to take full advantage of free trade agreements and duty savings programs and stay compliant with ever stricter rules around forced labor, sanctions and dual use controls. Finally, I want to emphasize the importance of returning e2open to best-in-class retention levels. We ended fiscal ‘24 with gross retention of approximately 90% and net retention of approximately 99%, which are down from a year ago. However, our in-depth analysis of the higher churn we experienced in fiscal ‘24, which I have personally led, has shown that much of this is very controllable with tried and true management processes that we are quickly putting in place.

Just in the last quarter, we have made progress in stabilizing churn and now have significantly improved visibility into its trajectory moving forward. More broadly, the key to consistently high retention is instilling a client-centric mindset across our entire company. We will do this in a variety of ways. We will exceed our clients’ expectations on implementations. We will deliver unique and measurable value. We will build client relationships for the long-term. And, we will work closely with leading systems integrators and value-added partners. With this approach, we can deliver transformational impact to our clients on every project, large or small. By putting clients first, every e2open engagement can result in a delighted, referenceable client willing to advocate for e2open, which will then help us win future business.

In conclusion, while our growth acceleration plan touches many elements of our business, it is very achievable and has already generated positive results and momentum. We plan to build on our progress throughout fiscal ‘25 with clients at the core of everything we do. Delivering client value with differentiated and distinctive solutions has been the cornerstone of the successful growth efforts that I’ve led at other major companies, and I am confident that this approach will return e2open to the double-digit organic growth rates that the Company enjoyed just a few years ago. While we still have work to do, we are moving in the right direction and the changes we have made to our business are laying the groundwork for success that will ultimately benefit our employees, our customers, and our shareholders.

I’ll now ask Greg, to provide an update on our go-to-market activities.

Greg Randolph: Thank you, Andrew. During our fiscal fourth quarter, we continued to execute our organic growth playbook. Our entire commercial organization is now aligned on putting our customers first and building long-term value-added relationships with them. We also continue to bring in new experienced talent. I’m very excited that Steve Baird has joined e2open as North America Sector President reporting directly to me. Steve has an impressive background leading high-performance sales organizations and delivering ARR growth at software firms such as SAP, Apptio and PTC. He has a proven track record as a Transformational Sales Executive and is a fantastic addition to our commercial leadership team. I’m equally pleased to announce that Mark Nordick has joined e2open as our new SVP of Global Services reporting directly to me.

Mark, will lead our Professional Services business bringing over 25 years of experience in leadership roles at BlueYonder and IBM. Mark has successfully built and led high-performance global teams in large and midsize SaaS and consulting services organizations in multiple regions of the world. I’m confident he is the right leader to make our PS organization a strategic differentiator for e2open. My initial focus at e2open was to quickly put in place key elements of a high-performing sales organization ranging from new leadership to effective sales enablement and then establish a disciplined operational cadence to improve near-term sales execution. These efforts are already producing results. In Q4 as we did in Q3, we drove in-quarter deal conversion rates at a much higher level than the first half of FY ‘24 and won important deals across multiple product families with new and existing clients.

With these basic building blocks in place, we are now pivoting to more targeted changes to our go-to-market model designed to position e2open for higher future growth. A cornerstone of this effort is ensuring that our sales capacity and talent are optimally aligned to our highest growth opportunities. Specifically, we are creating account focused teams that are solely responsible for maximizing satisfaction and retention within our existing client-base. These former teams will build the long-term client partnerships that are vital for a cross-sell focused growth strategy. In parallel, we are forming product specialized hunter teams. These teams will consist of highly skilled experienced sellers and will be responsible for driving product level growth in both new logo and existing client accounts.

As we implement this new commercial alignment, our primary measure of success will be acceleration in bookings and returning retention to world-class levels. To this end, we are executing a variety of proactive tailored measures in three critical areas, namely cross-selling our existing client-base, leveraging our system integrator partners and expanding our new logo business. Given our large existing customer-base, cross-selling is a critical growth factor for e2open that we are now pursuing in a far more systematic fashion than in the past. Our product team has led a deep dive into this opportunity focusing on industry and product specific areas where we have deep successful penetration with key clients. We then use these insights to identify and quantify by size and product line similar use cases with existing clients that present strong opportunities for cross-sell.

Based on this work, we now have detailed visibility into $2 billion of cross-sell opportunities with our current client-base. And in addition, we have identified another 500 accounts with very modest solution penetration, low ARR but significant upside potential. We are rolling out targeted product level campaigns to aggressively cross-sell in both areas. We expect this to be a major source of future growth for e2open. To illustrate the power of well executed cross-sell, I would cite the example of a current client, one of the world’s largest contract manufacturers and a user of e2open supply applications. This client recently selected e2open’s Global Logistics Orchestration or GLO solution to be the next stage in their supply chain journey.

GLO uses real-time visibility into multimodal shipments to identify unexpected events and provide tools to resolve them by orchestrating corrective actions. We achieved this important cross-sell win by positioning e2open as a long-term partner with industry leading solutions that met the client’s immediate and future needs. To further enhance our growth capabilities in the fourth quarter, we realigned e2open’s marketing function, which has top of the funnel sales pipeline responsibility to report directly into the commercial organization under my leadership. This move will ensure that we have consistent inflow of new high-quality prospects. We’ve also scrubbed our sales pipeline of early stage deals not meeting stringent criteria for strategic fit and win probability.

With this result oriented approach to pipeline management, our pipeline is now moving in the right direction. By combining a growing high-quality pipeline with the improved conversion rates we’ve already achieved, we now have the foundation in place to accelerate future growth. Another promising growth factor for e2open is proactive collaboration with systems integrators. Andrew and I have worked together closely to forge strong go-to-market partnerships with select SIs. The goal is to jointly identify clients with supply chain needs that match well with e2open’s product offerings and then bring in our sales teams to co-sell alongside the SI account team. This approach is working well. Our pipeline of SI-related projects increased materially in the back half of FY ‘24 and the services pipeline of our SI partners has grown as well.

This is evidence that our SI strategy can become a major contributor to our future revenue growth. We are also taking targeted steps to grow our new logo business. In recent years, competition for new logo deals has been weighted toward point procurement of planning and transportation solutions. However, customers are recognizing the limitations inherent in standalone disconnected point applications that did not support multimode, multi-tier collaboration across increasingly complex supply chains. This trend plays well to e2open’s strengths and we are running specific sales and marketing plays to capitalize on it. We recently scored our first major success by winning a highly competitive new logo deal in the planning space. The new client, a well-known consumer electronics supplier evaluated e2open’s planning application very highly.

But, the key to closing the deal was e2open’s unique ability to link planning and supply collaboration, a critical element of the client’s supply chain vision. Finally, I want to provide some commentary around churn. While our large customer retention metrics remain healthy, we have seen elevated churn within our long tail of smaller contracts. We are now implementing a detailed account-by-account plan to stabilize churn and improve retention. This is a top priority in the commercial team’s weekly operational cadence and we are seeing positive signs of progress. For example, over the last two quarters, we had several at-risk renewals where as a result of proactive engagement with the client, we turn potential down-sell into successful up-sells, in one case tripling the ARR value.

These success stories show that we can bend the curve on retention by driving a culture of long-term partnerships with our clients and instilling the operational discipline for early engagement on renewals. In summary, I’m very proud of the way that our commercial organization has embraced the growth-oriented client-centric changes that we have made over the last six months. We have a clear view of what we need to do to return e2open to double-digit growth rates and we expect to drive improved performance as we move through FY ‘25 laying the foundation for a return to accelerating growth in FY ‘26 and beyond. At this time, I’ll turn the call over to, Marje for a discussion of our financial results and guidance.

Marje Armstrong: Thank you, Greg. Today, I will review our fiscal fourth quarter and full-year 2024 results and then close with a discussion of our FY ‘25 guidance. But first, I want to express my sincere thanks to all e2open employees for the dedication and energy you’ve shown this fiscal year. While this has clearly been a year of transition, I know that you all share my enthusiasm for the positive changes we’re making at e2open. By continuing to move us one, we can realize our Company’s tremendous potential and also have a fantastic team experience along the way. So, thank you all. Now, turning to results. Subscription revenue in the fiscal fourth quarter 2024 was $134.4 million above the high-end of our $131 million to $134 million guidance.

While this represented a 1.8% decline on a year-over-year basis, subscription revenue increased sequentially for the first time in four quarters. As Andrew noted, we also closed several large subscription deals during Q4, following up on the improved bookings quarter we had in Q3. This marks two quarters in a row of improved in-quarter deal conversions compared to the first half of FY ‘24 and is a positive sign that the growth-oriented changes we have made at e2open are on-track and generating momentum. I would note that in-line with our expectations, Q4 revenue was negatively impacted by elevated churn. As Greg and Andrew outlined, we have made progress on stabilizing churn and we’re confident in our roadmap to return retention to normal historical levels as we get through this year.

For full fiscal year 2024, subscription revenue was $536.8 million and grew 0.7%. Full-year growth performance reflected e2open’s ongoing transition from an M&A focused company to one with strong consistent organic growth. We now have new commercial leadership with relevant experience to undertake a comprehensive growth reacceleration plan in close collaboration with our long standing product and R&D teams. We see this plan as very achievable given our attractive TAM, large existing customer white space, focused SI strategy and significant opportunity for new logo business. Professional services and other revenue in the fiscal fourth quarter was $24.1 million reflecting a decline of 18.0%. Sequentially, PS revenue was down slightly, but as a reminder, the fourth quarter has fewer workable service hours due to holiday.

Our PS business saw improved bookings in Q4 following a good Q3 performance and the business ended the fiscal year with higher backlog. Overall, the organizational changes we have made to our PS business have led to better sales execution and stronger collaboration with a broader commercial team. These improvements provide a solid foundation for our new PS leader to build on during FY ‘25 and beyond. Given the progress we’ve made, we now believe we have reversed the sharp decline in our services business and that it will return to modest revenue growth in FY ‘25. Total revenue for the fiscal fourth quarter was $158.5 million reflecting a decline of 4.7% over the prior year quarter. For full fiscal year 2024, total revenue was $634.6 million reflecting a decline of 2.7% year-over-year.

Turning to gross profit, in the fiscal fourth quarter of 2024, our non-GAAP gross profit was $110.9 million reflecting a 4.9% decline year-over-year. Non-GAAP gross margin was 70.0% in the fourth quarter compared to 70.2% in the prior year quarter. Non-GAAP gross margin for full fiscal year 2024 was 69.4% compared to 68.7% for the prior year. The improvement in full-year gross margin even in a year where our revenue performance was well below our potential was driven by a higher mix of subscription versus PS revenue as well as proactive efforts to drive operational efficiency. Turning to EBITDA. Our fourth quarter EBITDA was $55.1 million on a 34.8% margin compared to $61.2 million on a 36.8% margin in the prior year quarter. For full fiscal year 2024, adjusted EBITDA was $220.3 million compared to $217.1 million versus the prior fiscal year, an increase of 1.5%.

Adjusted EBITDA margin for the full fiscal 2024 was 34.7%, up from 33.3% in the prior fiscal year, as we remained focused on our commitment to operational efficiency and profitability. Finishing up on profitability, net loss for the fiscal fourth quarter of 2024 was $45.5 million and full fiscal year 2024 net loss was $1.2 billion. The full year net loss figure included non-cash goodwill impairment of $1.1 billion that reflected charges we took earlier in the year. Now, turning to cash flow. During the fiscal fourth quarter and full 2024 fiscal year, we generated $36.9 million and $116.0 million of adjusted operating cash flow respectively. We view strong consistent cash flow as a key performance metric and as an important indicator of our financial strength and so we’re pleased with our fiscal year cash generation and our rising level of cash conversion.

As a result of this year’s strong cash performance, we ended FY ‘24 with $134.5 million of cash and cash equivalents. This represents a year-over-year increase of $41.5 million even with the impact of certain non-recurring cash costs during the fiscal year. This completes my remarks on our fiscal Q4 and full-year FY ‘24 financial results. At this point, I’d like to introduce our FY ‘25 and first quarter fiscal guidance and provide our thoughts around key drivers of our forecasted performance. We expect FY ‘25 subscription revenue in the range of $532 million to $542 million representing year-over-year growth of 1% at the high-end and a decline of 1% at the low-end. In terms of key performance drivers, we expect bookings momentum to build as we move through FY ‘25 with the revenue impact becoming stronger in the second half of the year.

In addition, given the timing of previous customer retention decisions, we expect churn to remain elevated in early FY ‘25, but to improve steadily after mid-year given all the actions we’re taking now. Together, these FY ‘25 trends should position the business well as we exit the fiscal year for higher subscription revenue growth going forward. For the first quarter of FY ‘25, we expect subscription revenue in the range of $130 million to $133 million representing a decline of 3.6% to 1.4% as compared to the prior year fiscal first quarter. The Q1 growth rate is consistent with the earlier comments around the timing impacts of our FY ‘25 performance drivers. We expect FY ‘25 total revenue to be within the range of $630 million to $645 million in FY ‘25, representing year-over-year growth of 2.0% at the high-end and a decline of 1.0% at the low-end.

Our total revenue forecast includes our Professional Services business. We expect our PS business to build on improved bookings over the last two quarters and higher backlog by generating mid-single digit revenue growth in FY ‘25 back towards the PS business’ prior baseline. We expect FY ‘25 gross profit margin to be within a range of 68% to 70%. The midpoint of this range is roughly flat to what we achieved last year. Overall, our gross margin targets for the new fiscal year reflect the strong underlying fundamentals of our core subscription software business. Finishing up on profitability, we expect FY ‘25 adjusted EBITDA to be within the range of $215 million to $225 million. This represents growth of 2.0% at the high-end and a decline of 2.0% at the low-end and implies an adjusted EBITDA margin of 34% to 35% for FY ‘25.

This is consistent with last year’s performance and reflects our commitment to maintain profitability as we do the work necessary to reaccelerate growth. We will continue to focus on driving operational efficiencies in order to free up resources for investment in client-focused areas such as product innovation, flawless implementation, customer experience and sales productivity. Given the importance we place in generating strong cash flow, I want to provide some comments around our FY ‘25 cash generation expectations. Overall, we expect adjusted operating cash flow to grow in FY ‘25 as compared to FY ‘24. Couple of cash flow drivers to consider. We expect CapEx to be approximately 5% of revenue in FY ‘25, consistent with prior year.

We plan to drive working capital improvements and expect FY ‘25 working capital to be a modest use of cash. Cash interest expense net of interest income and the impact of our interest rate collars is expected to be in the range of $90 million to $95 million. This outlook assumes that so far follows the current forward curve that we meet our internal forecast regarding investment of excess cash and that term loan repayments are limited to required amortization of around $2.7 million per quarter. Finally, we expect non-recurring cash costs in FY ‘25 to decline significantly as compared to prior year. Based on our guidance for FY ‘25 adjusted EBITDA as well as our outlook for cash generation during the fiscal year, we now expect year-end FY ‘25 net leverage to be below four times.

In conclusion, FY ‘24 marked an important inflection point in e2open’s transition from an M&A focused company to one that is positioned to deliver sustainable double-digit organic growth. While our revenue performance this fiscal year was far below our potential, we delivered strong profitability and cash flow, again demonstrating the high-quality of our underlying business model. Moreover, during FY ‘24, we brought new experienced leadership into the Company to support our teams in implementing a client-centric plan to reaccelerate growth, building on the strength and industry experience of the long tenured talent across the organization. We showed clear signs of progress and momentum in the second half of the year. And, as we make these growth-oriented changes to our business, major customers continue to place their trust in e2open by selecting us for large strategically important software engagements.

We look forward to building on these successes in FY ‘25 as we lay a strong foundation for e2open’s return to double-digit growth. Before closing, I want to acknowledge our announcement in March that e2open is conducting a strategic review. The review is proceeding as planned, but we will not comment further until doing so is appropriate. Meanwhile, I can assure you that our entire management team and experienced employee base are keenly focused on serving our customers and executing our growth plan. That concludes our prepared remarks. I want to thank everyone for joining us today, and we look forward to connecting with you as we proceed through the fiscal year. Operator, please open up the line and begin the Q&A session.

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Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Chris Quintero with Morgan Stanley. Please proceed.

Chris Quintero: Hey, everyone. Thanks for taking our questions and great to be on the call with you today. I’ve got two questions. Andrew and Greg, you both have been on Board for a few months now and clearly have prioritized and gotten a better hold of the churn. But, I want to ask around the products that e2open has today. So, from your perspective, what product areas are you leaning into and thinking gain meaningful market share in? And on the flip side, are there any that you are looking to deemphasize? And, then second question, really great to hear about the new tailored measures for higher growth. Between the three that you outlined, where do you expect more of the growth to come from? Is it the cross-selling, the SI partners or new logos? A greater color there would be really helpful. Thank you.

Greg Randolph: Yes. Chris, great to hear from you. Yes, great questions. So on the first topic, our product platform, I’ve been at this now for eight months with the Company. And, what I’ve told my team and the people that I’m recruiting into the organization is that this is a salesperson’s dream, to have the capabilities, the breadth of products that we have and the competitiveness with each product category that we take to market. We can literally win in each of our five key product families across multiple industries. And, we have this vision of being an end-to-end supply chain provider, and we have the products to back it up. And so, it’s an incredibly marketable platform, but we can go toe-to-toe and we’ve proven it.

I made in my opening remarks that we can go toe-to-toe with the best point solution providers in the marketplace and win. So that, quite frankly, every product category has strengths and we’re able to drive growth with each of them. And, if you think about the growth factors, first of all, with our SI partnerships, we’ve really ramped up over the last six months and established a deeper relationship with those core partners. We’re starting to see a significant improvement and momentum around pipeline and they’re helping drive significant new logos. So, that is certainly of all three of them, we’re driving improvements and will contribute to growth. But, the SI partnership’s driving new logos has clearly been the most effective.

Chris Quintero: Excellent. Thank you so much.

Operator: The next question comes from Adam Hotchkiss with Goldman Sachs. Please proceed.

Adam Hotchkiss: Great. Thanks for taking the questions. Andrew and Greg, I’m curious how you think about the path to normalized churn for the business. You mentioned that 90% was where you exited the year on gross retention. I think it’s been 95% historically. Is it just a function of getting through a full renewal cycle with some of these at-risk accounts being more proactive? Or are there more immediate ways you think you can improve here that the business was just missing before? I’m just curious if you think there’s anything structural that makes this a bit more challenging based on the challenges of being in the longer tail of the business or if this is something that you can fully remediate through execution?

Andrew Appel: Yes, I think the answer is pretty straightforward actually. As I said in my intro, right, we need to become a client-centric organization, become client-centric then and get ahead of the cycle, call it. Marje talked about or Greg talked about that the retention rates are lower for some of the long tail churn than the enterprise churn. But for the enterprise churn, it’s just about basically being client-centric. And there’s I guess I’d say, so there’s nothing systemic. There’s nothing I’ve looked at many, many, many situations. It is about just managing it more normally, I’d say.

Marje Armstrong: Just to add to that, to your question in terms of the long tail, it’s a different approach. And, Greg has also talked about really segmenting and the way we are structuring the go-to-market organization and quite frankly customer care and all the support functions as well to look at the enterprise versus the long tail in a tailored way that should help us reduce churn for both cohorts in a very effective way.

Adam Hotchkiss: Okay, that’s really useful. And, then Greg and Marje, I’m curious how you think about investment in sales capacity and achieving some of the changes you mentioned around the go-to-market teams and the targeted SI investment, is this all just a function of resource reallocation given the guidance here? And then, Greg, I’d be curious what sales attrition has looked like relative to history as some of these changes have been implemented and what you’ve had to do on the talent acquisition and retention side as part of this shift? Thanks.

Greg Randolph: Yes. Thanks, Adam. We do not have essentially a capacity problem in sales. We have a productivity issue in sales, and we lack the number of quota carrying sellers getting a reasonable attainment to drive the necessary productivity level that will sustain long-term growth. And so, that’s why we’ve invested heavily in sales enablement. We’ve obviously top rated talent, and we’ve set very clear performance standards for the sales organization and measuring those standards on a weekly basis. And so yes, we do not need to invest in more sales capacity. I think the other piece is that you heard in my opening remarks. We are shifting reallocating capacity to highly specialized product sellers that focus both on new logo and cross-sell to bring, what I’ve experienced in the eight months that I’ve been here is that when we are engaged with the right salespeople positioning the products with value.

You heard Andrew in his remarks talk about the quantifiable business value. We were positioning those capabilities to get a lot of attention and tend to win a lot more than not. And so, that’s where we’re focused.

Adam Hotchkiss: Okay. All really helpful. Thanks, everyone.

Marje Armstrong: Thank you.

Operator: The next question is from Taylor McGinnis with UBS. Please proceed.

Taylor McGinnis: Yes. Hi. Thanks so much for taking my question. Maybe first one is just on the sales productivity piece. So, could you maybe just given all the changes that you guys have made recently, can you give us an idea of what sales productivity has trended more recently? And, I would imagine it’s going to take some time to ramp the sales force. So, when do you expect to see more stability in productivity and like a potential uptick that could materialize those trends?

Greg Randolph: Yes. Hey, Taylor. Thanks for the question. Yes, I think look, I implemented an operating model that I did at the two previous companies that was very execution focused, that is data driven. And, so we’ve got tremendous visibility into the metrics that we’re measuring the business. And, so if you look at the two key components that I’m driving super hard right now; Number 1 is, in quarter conversion. And we’ve seen measurable improvements in both Q3 and Q4 in our in-quarter conversion rates. The second component, is pipeline. And, my philosophy has always been quality over quantity first. Clearly, pipeline sufficiency is important, but it should be, first of all, measured on the quality of the pipeline.