UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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at an exercise price of $11.50 |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of January 5, 2023, E2open Parent Holdings, Inc. had Class A common stock, $0.001 par value per share, of 302,452,552 shares issued and
Table of Contents
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Item 1. |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
36 |
Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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57 |
2
Glossary of Terms
Abbreviation |
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Term |
ASC |
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Accounting Standards Codification |
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BluJay |
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BluJay TopCo Limited, a private limited liability company registered in England and Wales which owns BluJay Solutions, a cloud-based logistics execution platform company |
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BluJay Sellers |
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BluJay and its subsidiaries |
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CC Capital |
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CC NB Sponsor 1 Holdings LLC |
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Class A Common Stock |
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Class A common stock, par value $0.0001 per share |
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Class V Common Stock |
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Class V common stock, par value $0.0001 per share |
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Common Units |
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common units representing limited liability company interests of E2open Holdings, LLC, which are non-voting, economic interests in E2open Holdings, LLC. Every economic common unit is tied to one voting share of Class V Common Stock of E2open Parent Holdings, Inc. |
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Forward Purchase Agreement |
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agreement dated as of April 28, 2020, by and between CCNB1 and Neuberger Berman Opportunistic Capital Solutions Master Fund LP |
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Forward Purchase Warrants |
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5,000,000 redeemable warrants purchased pursuant to the Forward Purchase Agreement |
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Insight Partners |
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entities affiliated with Insight Venture Management, LLC, including funds under management; controlling unitholder of E2open Holdings, LLC |
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Investor Rights Agreement |
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agreement amended and restated on September 1, 2021 providing Insight Partners, CC Capital, Francisco Partners and Temasek the right to nominate members to the board of directors and requires parties to vote in favor of director nominees recommended by the board of directors. |
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LIBOR |
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London Interbank Offered Rate |
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Logistyx |
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Logistyx Technologies, LLC, a private limited liability company headquartered in Chicago, Illinois, which connects top retailers, manufacturers and logistics providers to more than 550 in-network carriers with strategic parcel shipping and omni-channel fulfillment technology. |
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nm |
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not meaningful |
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NYSE |
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New York Stock Exchange |
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PIPE |
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private investment in public equity; financing from institutional investors |
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Purchase Agreement |
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Share Purchase Deed entered into on May 27, 2021 with BluJay |
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RCU |
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restricted common units representing Series 1 and Series 2 of E2open Holdings, LLC |
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SCM |
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omni-channel and supply chain management |
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SEC |
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U.S. Securities and Exchange Commission |
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Temasek |
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Temasek Holdings (Private) Limited |
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U.S. GAAP |
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generally accepted accounting principles in the United States |
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VWAP |
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daily per share volume-weighted average price of the Class A Common Stock on the NYSE as displayed on the Bloomberg page under the heading Bloomberg VWAP |
3
Forward-Looking Statements
This Quarterly Report on Form 10-Q (Quarterly Report) contains "forward-looking statements" within the meaning of the federal securities law. These forward-looking statements give E2open Parent Holdings, Inc.'s (we, our, us, Company or E2open) current expectations and include projections of results of operations or financial condition or forecasts of future events. Words such as "may," "can," "should," "will," "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" and similar expressions are used to identify forward-looking statements. Without limiting the generality of the forgoing, forward-looking statements contained in this document include our expectations regarding our future growth, operational and financial performance and business prospects and opportunities.
These forward-looking statements are based on information available as of the date of this Quarterly Report and management's then current expectations, forecasts and assumptions, and involve a number of judgments, known and unknown risks and uncertainties and other factors, many of which are outside our control and our directors, officers and affiliates. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update, add or to otherwise correct any forward-looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
For a further discussion of these and other factors that could impact our future results and performance, see Part I, Item 1A., Risk Factors in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, filed with the SEC on April 29, 2022 (2022 Form 10-K).
4
PART I—Financial Information
Item 1. Financial Statements.
E2open Parent Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts) |
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November 30, 2022 |
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February 28, 2022 |
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(Unaudited) |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable - net of allowance of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Goodwill |
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Intangible assets, net |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Channel client deposits payable |
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Deferred revenue |
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Payable to Logistyx sellers |
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— |
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Current portion of notes payable |
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Current portion of operating lease obligations |
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Current portion of financing lease obligations |
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Income taxes payable |
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Total current liabilities |
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Long-term deferred revenue |
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Operating lease obligations |
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Financing lease obligations |
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— |
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Notes payable |
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Tax receivable agreement liability |
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Warrant liability |
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Contingent consideration |
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Deferred taxes |
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Other noncurrent liabilities |
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Total liabilities |
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Stockholders' Equity |
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Class A common stock; $ |
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Class V common stock; $ |
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Series B-1 common stock; $ |
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Series B-2 common stock; $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Treasury stock, at cost: |
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( |
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Total E2open Parent Holdings, Inc. equity |
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Noncontrolling interest |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
5
E2open Parent Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended November 30, |
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Nine Months Ended November 30, |
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(In thousands, except per share amounts) |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue |
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Subscriptions |
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$ |
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$ |
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$ |
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$ |
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Professional services and other |
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Total revenue |
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Cost of Revenue |
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Subscriptions |
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Professional services and other |
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Amortization of acquired intangible assets |
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Total cost of revenue |
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Gross Profit |
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Operating Expenses |
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Research and development |
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Sales and marketing |
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General and administrative |
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Acquisition-related expenses |
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Amortization of acquired intangible assets |
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Goodwill impairment |
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— |
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— |
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— |
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Total operating expenses |
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Loss from operations |
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Other income (expense) |
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Interest and other expense, net |
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( |
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Gain (loss) from change in tax receivable |
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( |
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Gain (loss) from change in fair value of warrant |
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( |
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Gain (loss) from change in fair value of contingent |
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Total other income (expense) |
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( |
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( |
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Loss before income tax provision |
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( |
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( |
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( |
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Income tax benefit |
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Net income (loss) |
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( |
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Less: Net income (loss) attributable to |
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( |
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Net income (loss) attributable to E2open |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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Net income (loss) attributable to E2open Parent |
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Basic |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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See notes to unaudited condensed consolidated financial statements.
6
E2open Parent Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
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Three Months Ended November 30, |
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Nine Months Ended November 30, |
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(In thousands) |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive loss, net: |
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Net foreign currency translation income (loss), |
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( |
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( |
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Net deferred losses on cash flow hedges |
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( |
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— |
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( |
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— |
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Total other comprehensive income (loss), net |
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( |
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( |
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( |
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Comprehensive income (loss) |
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( |
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( |
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( |
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Less: Comprehensive income (loss) attributable |
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( |
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( |
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( |
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Comprehensive income (loss) attributable to |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
) |
See notes to unaudited condensed consolidated financial statements.
7
E2open Parent Holdings, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In thousands) |
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Common |
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Additional |
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Accumulated |
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Retained |
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Treasury Stock |
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Total |
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Noncontrolling |
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Total |
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Balance, February 28, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
) |
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( |
) |
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( |
) |
Balance, May 31, 2021 |
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( |
) |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Business Combination |
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— |
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— |
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— |
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— |
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Conversion of Common |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Conversion of Series B-1 |
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— |
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— |
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( |
) |
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— |
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Impact of Common Unit |
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— |
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( |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Other comprehensive loss |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
) |
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( |
) |
Balance, August 31, 2021 |
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( |
) |
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( |
) |
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( |
) |
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Share-based compensation |
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— |
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— |
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— |
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— |
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|
|
|
|
— |
|
|
|
|
|||
Issuance of common stock |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Issuance of common stock |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Conversion of Common |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Exercise of warrants |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Deferred taxes related to |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Impact of Common Unit |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, November 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
See notes to unaudited condensed consolidated financial statements.
8
E2open Parent Holdings, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Continued)
(Unaudited)
(In thousands) |
|
Common |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Treasury Stock |
|
|
Total |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
Balance, February 28, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Conversion of Common |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Vesting of restricted stock |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, May 31, 2022 |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Conversion of Common |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Vesting of restricted stock |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Impact of Common Unit |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, August 31, 2022 |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Conversion of Common |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Vesting of restricted stock |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Impact of Common Unit |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Balance, November 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
See notes to unaudited condensed consolidated financial statements.
9
E2open Parent Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended November 30, |
|
|||||
(In thousands) |
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of deferred commissions |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Amortization of operating lease right-of-use assets |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Right-of-use assets impairment charge |
|
|
|
|
|
— |
|
|
Goodwill impairment charge |
|
|
|
|
|
— |
|
|
(Gain) loss from change in tax receivable agreement liability |
|
|
( |
) |
|
|
|
|
(Gain) loss from change in fair value of warrant liability |
|
|
( |
) |
|
|
|
|
(Gain) loss from change in fair value of contingent consideration |
|
|
( |
) |
|
|
|
|
Loss (gain) on disposal of property and equipment |
|
|
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Other noncurrent assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Channel client deposits payable |
|
|
( |
) |
|
|
|
|
Deferred revenue |
|
|
( |
) |
|
|
|
|
Changes in other liabilities |
|
|
( |
) |
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Payments for acquisitions - net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Minority investment in private firm |
|
|
( |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from PIPE investment |
|
|
— |
|
|
|
|
|
Offering costs related to issuance of common stock in connection with |
|
|
— |
|
|
|
( |
) |
Proceeds from warrant exercise |
|
|
— |
|
|
|
|
|
Proceeds from indebtedness |
|
|
|
|
|
|
||
Repayments of indebtedness |
|
|
( |
) |
|
|
( |
) |
Repayments of financing lease obligations |
|
|
( |
) |
|
|
( |
) |
Repurchase of common stock |
|
|
— |
|
|
|
( |
) |
Repurchase of Common Units |
|
|
( |
) |
|
|
( |
) |
Payments of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
||
Net decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
See notes to unaudited condensed consolidated financial statements.
10
E2open Parent Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Basis of Presentation
Organization and Description of Business
CC Neuberger Principal Holdings I (CCNB1) was a blank check company incorporated in the Cayman Islands on January 14, 2020 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. CCNB1's sponsor was CC Neuberger Principal Holdings I Sponsor LLC, a Delaware limited liability company (Sponsor). CCNB1 became a public company on April 28, 2020 through an initial public offering.
On February 4, 2021 (Closing Date), CCNB1 and E2open Holdings, LLC and its operating subsidiaries (E2open Holdings) completed a business combination (Business Combination) contemplated by the definitive Business Combination Agreement entered into on October 14, 2020 (Business Combination Agreement). In connection with the finalization of the Business Combination, CCNB1 changed its name to "E2open Parent Holdings, Inc." (E2open) and changed its jurisdiction of incorporation from the Cayman Islands to the State of Delaware (Domestication).
Immediately following the Domestication, various entities merged with and into E2open, with E2open as the surviving company. Additionally, E2open Holdings became a subsidiary of E2open with the equity interests of E2open Holdings held by E2open and existing owners of E2open Holdings. The existing owners of E2open Holdings are considered noncontrolling interests in the condensed consolidated financial statements.
We are headquartered in Austin, Texas. We are a leading provider of cloud-based, end-to-end omni-channel and supply chain management software. Our software combines networks, data and applications to provide a deeply embedded, mission-critical platform that allows clients to optimize their supply chain by accelerating growth, reducing costs, increasing visibility and driving improved resiliency. Given the business-critical nature of our solutions, we maintain deep, long-term relationships with our clients across a wide range of end-markets, including technology, consumer, industrial and transportation, among others.
Basis of Presentation
These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. Investments in other companies are carried at cost. See Note 10, Investments for additional information. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2023. For further information, refer to the consolidated financial statements and notes thereto included in our 2022 Form 10-K.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported results of operations during the reporting period. Such management estimates include allowance for credit losses, goodwill and other long-lived assets, estimates of standalone selling price of performance obligations for revenue contracts with multiple performance obligations, share-based compensation, valuation allowances for deferred tax assets and uncertain tax positions, tax receivable agreement liability, warrants, contingent consideration and the accounting for business combinations. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management's estimates.
Reclassifications
During the second quarter of fiscal 2023, we began reporting deferred income taxes as a separate line as part of operating activities in the Condensed Consolidated Statements of Cash Flows. As a result, we reclassed a use of cash of $
11
During the third quarter of fiscal 2023, we began reporting current income taxes payable as a separate line on the Condensed Consolidated Balance Sheets. As a result, we reclassed $
Seasonality
Our quarterly operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control, including seasonality in our business as a result of client budget cycles and customary European vacation schedules, with higher sales typically in the third and fourth fiscal quarters. As a result, our past results may not be indicative of our future performance and comparing our operating results on a period-to-period basis may not be meaningful.
2. Accounting Standards
Recent Accounting Guidance Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting to simplify the accounting for contract modifications made to replace LIBOR or other reference rates that are expected to be discontinued because of the reference rate reform. The guidance provides optional expediates and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criterion are met. The optional expedients and exceptions can be applied to contract modifications made until December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in ASU 2021-01 are elective and apply to our debt instruments that may be modified as a result of the reference rate reform. We are continuing to evaluate these standards, as well as the timing of the transition of various rates in our debt instruments affected by reference rate reform.
3. Acquisitions
Logistyx Acquisition
On March 2, 2022, E2open, LLC acquired all of the issued and outstanding membership interests of Logistyx for a purchase price of $
On August 15, 2022, E2open, LLC and the sellers of Logistyx agreed to extend the final payment to
The Logistyx Acquisition was accounted for as a business combination under ASC 805, Business Combinations.
The following summarizes the consideration paid for the Logistyx Acquisition.
($ in thousands) |
|
Fair Value |
|
|
Cash consideration to Logistyx at fair value |
|
$ |
|
|
Cash repayment of debt |
|
|
|
|
Cash paid for seller transaction costs |
|
|
|
|
Working capital adjustment |
|
|
( |
) |
Estimated consideration paid for the Logistyx Acquisition |
|
$ |
|
12
We recorded the preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of March 2, 2022.
($ in thousands) |
|
Preliminary Purchase Price Allocation |
|
|
Adjustments (3) |
|
|
Updated Preliminary Purchase Price Allocation |
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Account receivable, net |
|
|
|
|
|
— |
|
|
|
|
||
Other current assets |
|
|
|
|
|
— |
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
— |
|
|
|
|
||
Intangible assets |
|
|
|
|
|
( |
) |
|
|
|
||
Goodwill (1) |
|
|
|
|
|
( |
) |
|
|
|
||
Non-current assets |
|
|
|
|
|
— |
|
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Current liabilities |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Deferred revenue (2) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Non-current liabilities |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total assets acquired and liabilities assumed |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The fair value of the intangible assets is as follows:
($ in thousands) |
|
Useful Lives |
|
Fair Value |
|
|
Trade name |
|
|
$ |
|
||
Developed technology (1) |
|
|
|
|
||
Client relationships (2) |
|
|
|
|
||
Backlog (3) |
|
|
|
|
||
Total intangible assets |
|
|
|
$ |
|
The preliminary allocation of the purchase price is based on preliminary valuations performed to determine the fair value of the net assets as of March 2, 2022. This allocation is subject to revision as the assessment is based on preliminary information subject to refinement.
We incurred $
13
BluJay Acquisition
On May 27, 2021, we entered into a Purchase Agreement with the BluJay Sellers to acquire all of the outstanding equity of BluJay. On September 1, 2021 (Acquisition Date), we completed the acquisition of BluJay (BluJay Acquisition). The BluJay Acquisition was accounted for as a business combination under ASC 805, Business Combinations.
The cash consideration in the BluJay Acquisition was provided by $
The following summarizes the consideration paid for the BluJay Acquisition.
($ in thousands) |
|
Fair Value |
|
|
Equity consideration paid to BluJay (1) |
|
$ |
|
|
Cash consideration to BluJay |
|
|
|
|
Preference share consideration paid to BluJay (2) |
|
|
|
|
Cash repayment of debt |
|
|
|
|
Cash paid for seller transaction costs |
|
|
|
|
Estimated consideration paid for the BluJay Acquisition |
|
$ |
|
(In thousands, except per share data) |
|
Consideration |
|
|
Common shares subject to sales restriction |
|
|
|
|
Fair value per share |
|
$ |
|
|
Equity consideration paid to BluJay |
|
$ |
|
We recorded the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the Acquisition Date and adjusted certain items as noted below.
($ in thousands) |
|
Preliminary Purchase Price Allocation |
|
|
Adjustments (4) |
|
|
Final Purchase Price Allocation |
|
|||
Cash and cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Account receivable, net |
|
|
|
|
|
( |
) |
|
|
|
||
Other current assets |
|
|
|
|
|
|
|
|
|
|||
Property and equipment, net |
|
|
|
|
|
— |
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
— |
|
|
|
|
||
Intangible assets |
|
|
|
|
|
— |
|
|
|
|
||
Goodwill (1) |
|
|
|
|
|
( |
) |
|
|
|
||
Non-current assets |
|
|
|
|
|
( |
) |
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Current liabilities (2) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Deferred revenue (3) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Deferred taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-current liabilities |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total assets acquired and liabilities assumed |
|
$ |
|
|
$ |
— |
|
|
$ |
|
14
The fair value of the intangible assets is as follows:
($ in thousands) |
|
Useful Lives |
|
Fair Value |
|
|
Trade name |
|
|
$ |
|
||
Developed technology (1) |
|
|
|
|
||
Client relationships (2) |
|
|
|
|
||
Total intangible assets |
|
|
|
$ |
|
We incurred $
Unaudited Pro Forma Operating Results
The following unaudited pro forma combined financial information presents the results of operations as if the BluJay and Logistyx acquisitions happened as of March 1, 2021. The unaudited pro forma results may not necessarily reflect actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma results reflect the step-up amortization adjustments for the fair value of intangible assets acquired, the elimination of historical interest expense incurred by BluJay and Logistyx on its debt and the incurrence of interest expense related to the issuance of debt in connection with the BluJay and Logistyx acquisitions, transaction expenses, nonrecurring post-combination compensation expense and the related adjustment to the income tax provision.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
($ in millions) |
|
November 30, 2021 |
|
|
November 30, 2021 |
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
Net loss |
|
|
( |
) |
|
|
( |
) |
Less: Net loss attributable to noncontrolling interest |
|
|
( |
) |
|
|
( |
) |
Net loss attributable to E2open Parent Holdings, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
4. Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital, capital expenditure needs, contractual obligations and other commitments, with cash flows from operations and other sources of funding. Current working capital needs relate mainly to employee compensation and benefits, as well as interest, debt repayments, capital expenditures and operating expenses. Our ability to expand and grow our business will depend on many factors, including working capital needs and the evolution of operating cash flows.
We had $
15
Credit Facility (see Note 13, Notes Payable) will be sufficient to meet our working capital, debt repayment and capital expenditure requirements for at least the next twelve months.
In the future, we may enter into arrangements to acquire or invest in complementary businesses. To facilitate these acquisitions or investments, we may seek additional equity or debt financing.
5. Accounts Receivable
Accounts receivable, net consisted of the following:
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Unbilled receivables |
|
|
|
|
|
|
||
Less: Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
Unbilled receivables represent revenue recognized for performance obligations that have been satisfied but for which amounts have not been billed, which we also refer to as contract assets.
Account balances are written off against the allowance for credit losses when we believe that it is probable that the receivable balance will not be recovered.
The allowance for credit losses was comprised of the following:
($ in thousands) |
|
|
|
Amount |
|
|
Balance, February 28, 2021 |
|
|
|
$ |
( |
) |
BluJay Acquisition |
|
|
|
|
( |
) |
Additions |
|
|
|
|
( |
) |
Write-offs |
|
|
|
|
|
|
Balance, February 28, 2022 |
|
|
|
|
( |
) |
Logistyx Acquisition |
|
|
|
|
( |
) |
Additions |
|
|
|
|
( |
) |
Write-offs |
|
|
|
|
|
|
Balance, November 30, 2022 |
|
|
|
$ |
( |
) |
6. Prepaid and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Prepaid software and hardware license and maintenance fees |
|
$ |
|
|
$ |
|
||
Income and other taxes receivable |
|
|
|
|
|
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Deferred commissions |
|
|
|
|
|
|
||
Prepaid marketing |
|
|
|
|
|
|
||
Security deposits |
|
|
|
|
|
|
||
Other prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
Amortization of software licenses held under financing leases is included in cost of revenue and operating expenses. Prepaid maintenance, services and insurance are expensed over the term of the underlying agreements.
16
7. Goodwill
During the fourth quarter of each fiscal year, we assess our goodwill for potential impairment. This impairment testing is applied more frequently if we become aware of events or circumstances since the last impairment testing that might call into question whether the current balances are fairly recorded. During the second quarter of fiscal 2023, the market price of our Class A common stock and market capitalization declined significantly. This decline resulted in us determining that a triggering event occurred and an interim goodwill impairment assessment was performed.
We performed a qualitative "Step 0" goodwill impairment assessment during the second quarter of fiscal 2023 which indicated that a quantitative "Step 1" impairment analysis needed to be performed as well. The fair value of E2open was determined using a discounted cash flow method, guideline public company method and guideline transaction method using an income-based and market-based approach.
We calculated the fair value of E2open under three different methods: discounted cash flow method, guideline public company method and guideline transaction method. The discounted cash flow method was based on the present value of estimated future cash flows which were based on management's estimates of revenue growth rates and net operating income margins, taking into consideration market and industry conditions. The discount rate used was based on the weighted-average cost of capital adjusted for the risk, size premium and business-specific characteristics related to the business's ability to execute on the projected cash flows. Under the guideline public company method, the fair value was based on forward-looking earnings multiples derived from comparable publicly traded companies with similar market position and size. The unobservable inputs used to measure the fair value included projected revenue growth rates, the weighted average cost of capital, the normalized working capital level, capital expenditures assumptions, profitability projections, control premium, the determination of appropriate market comparison companies and terminal growth rates. Under the guideline transaction method, the fair value was based on pricing multiples derived from recently sold companies with similar characteristics to ours. The three approaches generated similar results and indicated that the fair value of E2open's equity and goodwill was less than its carrying amount. Therefore, in the second quarter of fiscal 2023, we recognized an impairment charge of $
We did
The following table presents the changes in goodwill:
($ in thousands) |
|
Amount |
|
|
Balance, February 28, 2021 |
|
$ |
|
|
Business Combination purchase price adjustment (1) |
|
|
|
|
BluJay Acquisition (2) |
|
|
|
|
Currency translation adjustment |
|
|
( |
) |
Balance, February 28, 2022 |
|
|
|
|
BluJay Acquisition adjustment (2) |
|
|
( |
) |
Logistyx Acquisition (3) |
|
|
|
|
Impairment charge |
|
|
( |
) |
Currency translation adjustment |
|
|
( |
) |
Balance, November 30, 2022 |
|
$ |
|
17
8. Intangible Assets, Net
Intangible assets, net consisted of the following:
|
|
November 30, 2022 |
|
|||||||||||
($ in thousands) |
|
Weighted Average |
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|||
Indefinite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|||
Trademark / Trade name |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Definite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|||
Client relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Technology |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Content library |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trade name |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Backlog |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total definite-lived |
|
|
|
|
|
|
|
( |
) |
|
|
|
||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
February 28, 2022 |
|
|||||||||||
($ in thousands) |
|
Weighted Average |
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|||
Indefinite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|||
Trademark / Trade name |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Definite-lived: |
|
|
|
|
|
|
|
|
|
|
|
|||
Client relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Technology |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Content library |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Trade name |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total definite-lived |
|
|
|
|
|
|
|
( |
) |
|
|
|
||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The e2open trade name is indefinite-lived. Acquired trade names are definite-lived as over time we rebrand acquired products and services as e2open.
During the three months ended August 31, 2022, gross client relationships and technology were reduced by $
Amortization of intangible assets is recorded in cost of revenue and operating expenses in the Condensed Consolidated Statements of Operations. We recorded amortization expense related to intangible assets of $
9. Property and Equipment, Net
Property and equipment, net consisted of the following:
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Computer equipment |
|
$ |
|
|
$ |
|
||
Software |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Gross property and equipment |
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
Computer equipment and software include assets held under financing leases. Amortization of assets held under financing leases is included in depreciation expense. See Note 25, Leases for additional information regarding our financing leases.
18
Depreciation expense was $
10. Investments
On February 4, 2022, we made a minority investment of $
This minority investment does not have a readily determinable fair value; therefore, we elected the measurement alternative for our minority investment. The investment is measured at cost, less impairment and adjusted for qualifying observable price changes and recorded in other noncurrent assets in the Condensed Consolidated Balance Sheets.
We regularly evaluate the carrying value of our investment for impairment and whether any events or circumstances are identified that would significantly harm the fair value of the investment. In the event a decline in fair value is less than the investment's carrying value, we will record an impairment charge in other income (expense) in the Condensed Consolidated Statements of Operations. We have
11. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Accrued compensation |
|
$ |
|
|
$ |
|
||
Accrued severance and retention |
|
|
|
|
|
|
||
Trade accounts payable |
|
|
|
|
|
|
||
Accrued professional services |
|
|
|
|
|
|
||
Restructuring liability |
|
|
|
|
|
|
||
Interest payable |
|
|
|
|
|
|
||
Client deposits |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accounts payable and accrued liabilities |
|
$ |
|
|
$ |
|
In the 2022 Form 10-K, $
12. Tax Receivable Agreement
E2open Holdings entered into a Tax Receivable Agreement with selling equity holders of E2open Holdings that requires us to pay
Quarterly tax distributions will be paid to the holders of Common Units on a pro rata basis based upon an agreed upon formula related to the taxable income of E2open Holdings allocable to holders of Common Units. Generally, these tax distributions will be computed based on the Company's estimate of taxable income of E2open Holdings allocable to each holder of Common Units (based on certain assumptions), multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for a U.S. corporation organized under the laws of the State of Delaware, taking into account all jurisdictions in which the Company is required to file income tax returns together with the relevant apportionment information and the character of E2open Holdings' income, subject to various adjustments.
19
Significant inputs and assumptions were used to estimate the future expected payments including the timing of the realization of the tax benefits, a tax rate of
Pursuant to ASC 805, Business Combination and relevant tax law, we have calculated the fair value of the tax receivable agreement payments related to the transaction at the acquisition date and identified the timing of the utilization of the tax attributes. Under ASC 805, the Tax Receivable Agreement liability, as of the acquisition date, will be revalued at the end of each reporting period with the gain or loss as well as the associated interest reflected in the gain (loss) from change in tax receivable agreement liability in the Condensed Consolidated Statements of Operations in the period in which the event occurred. Interest will accrue on the tax receivable agreement liability at a rate of LIBOR plus
The Tax Receivable Agreement liability was $
13. Notes Payable
Notes payable outstanding were as follows:
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
2021 Term Loan |
|
$ |
|
|
$ |
|
||
2021 Revolving Credit Facility |
|
|
|
|
|
|
||
Other notes payable |
|
|
— |
|
|
|
|
|
Total notes payable |
|
|
|
|
|
|
||
Less unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Total notes payable, net |
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
Notes payable, less current portion, net |
|
$ |
|
|
$ |
|
2021 Term Loan and Revolving Credit Facility
In February 2021, E2open, LLC, our subsidiary, entered into a credit agreement (Credit Agreement) that provided for $
20
The 2021 Revolving Credit Facility will mature on
The proceeds from the $
The Credit Agreement is guaranteed by E2open Intermediate, LLC, our subsidiary, and certain wholly owned subsidiaries of E2open, LLC, as guarantors, and is supported by a security interest in substantially all of the guarantors' personal property and assets. The Credit Agreement contains certain customary events of default, representations and warranties as well as affirmative and negative covenants.
As of November 30, 2022 and February 28, 2022, the 2021 Term Loan had a variable interest rate of
14. Contingent Consideration
Business Combination
The contingent consideration liability is due to the issuance of Series B-1 and B-2 common stock and Series 1 restricted common units (RCUs) and Series 2 RCUs of E2open Holdings as part of the Business Combination. These shares and units were issued on a proportional basis to each holder of Class A shares in CCNB1 and Common Units of E2open Holdings. These restricted shares and Common Units are treated as a contingent consideration liability under ASC 805 and valued at fair market value. The contingent consideration liability was recorded at fair value on the acquisition date and will be remeasured at each reporting date and adjusted if necessary. Any gain or loss recognized from the remeasurement will be recorded in gain (loss) from the change in fair value of contingent consideration on the Condensed Consolidated Statements of Operations as a nonoperating income (expense) as the change in fair value is not part of our core operating activities.
The contingent consideration liability was $
The
As of June 8, 2021, the
There were
21
Similar to the Series B-1 common stock, the
As of June 8, 2021, the 5-day VWAP of our Class A Common Stock exceeded $
There were
Upon the conversion of an RCU, the holder of such RCU will be entitled to receive a payment equal to the amount of ordinary distributions paid on an E2open Holdings unit from the Closing Date through (but not including) the date such RCU converts into an E2open Holdings unit. If any of the RCUs do not vest on or before the
We have not paid any dividends to date and do not expect to in the future.
Sponsor Side Letter
In connection with the execution of the Business Combination Agreement, the Sponsor, certain investors and CCNB1's Independent Directors entered into the Sponsor Side Letter Agreement with CCNB1. Under the Sponsor Side Letter Agreement,
These restricted shares were treated as a contingent consideration liability under ASC 805 and valued at fair market value. The contingent consideration liability was recorded at fair value on the acquisition date and remeasured at each reporting date and adjusted if necessary. Any gain or loss recognized from the remeasurements was recorded in gain (loss) from the change in fair value of contingent consideration on the Condensed Consolidated Statements of Operations as a nonoperating income (expense) as the change in fair value was not part of our core operating activities.
As of June 8, 2021, the
15. Financial Instruments
We recognize derivative instruments as either assets or liabilities in the Condensed Consolidated Balance Sheets at fair value and provide qualitative and quantitative disclosures about such derivatives. We have international operations that expose us to potentially adverse movements in foreign currency exchange rates. To reduce our exposure to foreign currency rate changes on forecasted operating expenses, we enter into hedges in the form of foreign currency forward contracts related to changes in the U.S. dollar/foreign currency relationship. We do not use foreign currency forward contracts for speculative or trading purposes. Our derivative contracts are governed by an International Swaps and Derivatives Association master agreement that generally includes standard netting arrangements.
We are exposed to credit loss in the event of non-performance by counterparties to our derivative contracts. We actively monitor our exposure to credit risk, enter into foreign exchange forward contracts with high credit quality financial institutions and mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty. We have not experienced any instances of non-performance by any counterparties.
The assets or liabilities associated with the forward contracts are recorded at fair value in prepaid expenses and other current assets, other noncurrent assets, accounts payable and accrued liabilities or other noncurrent liabilities in the Condensed Consolidated Balance Sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. The cash flow impact upon settlement of the derivate contracts will be included in net cash from operating activities in the Condensed Consolidated Statements of Cash Flows.
22
Cash Flow Hedging Activities
Our foreign exchange forward contracts are designed and qualify as cash flow hedges. The contracts currently hedge the U.S. dollar/Indian Rupee relationship with the duration of these forward contracts ranging from
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes in future cash flows on the hedged transactions. The related gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (loss) in stockholders' equity and reclassified into operating expenses when the hedge is settled. As of November 30, 2022, our foreign exchange forward contracts have durations of approximately
Our exposure to the market gains or losses will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.
The following table represents the Condensed Consolidated Balance Sheets location and amount of the derivative instrument fair values:
($ in thousands) |
|
November 30, 2022 |
|
|
Accounts payable and accrued liabilities |
|
$ |
( |
) |
Other noncurrent liabilities |
|
|
( |
) |
We estimate the $
We report our foreign exchange forward contract assets and liabilities on a net basis in the Condensed Consolidated Balance Sheets when a master-netting arrangement exists between us and the counterparty to the contract. A standard master netting agreement exists between us and the counterparty to the foreign exchange forward contract entered into in August 2022. The agreement allows for multiple transaction payment netting and none of the netting arrangements involve collateral. As of November 30, 2022, all of the foreign exchange forward contracts are in a liability position.
See Note 22, Other Comprehensive Loss for additional information regarding our cash flow hedges.
16. Fair Value Measurement
Our financial instruments include cash and cash equivalents; investments; accounts receivable, net; accounts payable; acquisition-related obligations; notes payable; and financing lease obligations. Accounts receivable, net; accounts payable; and acquisition-related obligations are stated at their carrying value, which approximates fair value, due to their short maturity. We measure our cash equivalents and investments at fair value, based on an exchange or exit price which represents the amount that would be received for an asset sale or an exit price, or paid to transfer a liability in an orderly transaction between knowledgeable and willing market participants. We estimate the fair value for notes payable and financing lease obligations by discounting the future cash flows of the related note and lease payments. As of November 30, 2022 and February 28, 2022, the fair value of the cash and cash equivalents, restricted cash, notes payable and financing lease obligations approximates their recorded values.
The following tables set forth details about our investments:
($ in thousands) |
|
Cost |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
February 28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
Observable inputs are based on market data obtained from independent sources. Unobservable inputs reflect our assessment of the assumptions market participants would use to value certain financial instruments. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
23
Our assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy are summarized as follows:
|
|
November 30, 2022 |
|
|||||||||||||
($ in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Total investments |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total assets |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forward currency contracts |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Cash-settled restricted stock units |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Tax receivable agreement liability |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
February 28, 2022 |
|
|||||||||||||
($ in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total cash equivalents |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total investments |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tax receivable agreement liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Warrant liability |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
Cash-Settled Restricted Stock Units
Cash-settled restricted stock units (RSUs) form part of our compensation program. The fair value of these awards are determined using the closing stock price of our Class A Common Stock on the last day of each balance sheet date which is considered an observable quoted market price in active markets (Level 1).
Contingent Consideration
The following table provides a reconciliation of the beginning and ending balances of acquisition related accrued earn-outs and contingent consideration using significant unobservable inputs (Level 3) from March 1, 2022 through November 30, 2022 and March 1, 2021 through February 28, 2022:
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Beginning of period |
|
$ |
|
|
$ |
|
||
Conversion to Class A Common Stock |
|
|
— |
|
|
|
( |
) |
Cash payments |
|
|
— |
|
|
|
( |
) |
(Gain) loss from fair value of contingent consideration |
|
|
( |
) |
|
|
|
|
End of period |
|
$ |
|
|
$ |
|
The change in the fair value of the earn-out is recorded in acquisition-related expenses while the change in the fair value of the contingent consideration is recorded in gain (loss) from change in fair value of contingent consideration in the Condensed Consolidated Statements of Operations.
24
Tax Receivable Agreement
Our tax receivable agreement liability is measured under both ASC 805 at fair value on a recurring basis using significant unobservable inputs (Level 3) and ASC 450 at book value.
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Beginning of period |
|
$ |
|
|
$ |
|
||
Gain (loss) from fair value of tax receivable agreement liability |
|
|
( |
) |
|
|
|
|
End of period |
|
$ |
|
|
$ |
|
The change in the fair value of the tax receivable agreement liability is recorded in gain (loss) from change in tax receivable agreement liability in the Condensed Consolidated Statements of Operations.
Warrants
Our warrant liability is measured at fair value on a recurring basis using active market quoted prices (Level 1) and significant unobservable inputs (Level 3).
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Beginning of period |
|
$ |
|
|
$ |
|
||
Gain from fair value of warrant liability |
|
|
( |
) |
|
|
( |
) |
End of period |
|
$ |
|
|
$ |
|
The change in the fair value of the warrant liability is recorded in gain (loss) from change in fair value of warrant liability in the Condensed Consolidated Statements of Operations.
The fair values of our Level 1 financial instruments, which are traded in active markets, are based on quoted market prices for identical instruments. The fair values of our Level 2 financial instruments are based on quoted market prices for comparable instruments or model-driven valuations using observable market data or inputs corroborated by observable market data.
Our earn-out liabilities and contingent consideration are valued using a Monte Carlo simulation model. The assumptions used in preparing these models include estimates such as volatility, contractual terms, discount rates, dividend yield and risk-free interest rates. These valuation models use unobservable market input, and therefore the liabilities are classified as Level 3.
Our public warrants are valued using active market quoted prices, which are Level 1 inputs. The private placement warrants are valued using a binomial pricing model when the warrants are subject to the make-whole table, or otherwise are valued using a Black-Scholes pricing model. The Forward Purchase Warrants are valued utilizing observable market prices for public shares and warrants, relative to the present value of contractual cash proceeds. The assumptions used in preparing these models include estimates such as volatility, contractual terms, discount rates, dividend yield, expiration dates and risk-free interest rates. These valuation models use unobservable market input, and therefore the liability is classified as both Level 1 and Level 3.
17. Revenue
We primarily generate revenue from the sale of subscriptions and professional services. We recognize revenue when the client contract and associated performance obligations have been identified, transaction price has been determined and allocated to the performance obligations in the contract, and performance obligations have been satisfied. We recognize revenue net of any taxes collected from clients, which are subsequently remitted to governmental authorities. Other revenue is recognized when the service is delivered to the client.
25
Total Revenue by Geographic Locations
Revenue by geographic regions consisted of the following:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Revenues by geography are determined based on the region of our contracting entity, which may be different than the region of the client. Americas revenue attributed to the United States was
During the three months ended November 30, 2022 and 2021, we recorded a $
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied. It includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods and does not include contracts where the client is not committed. The client is not considered committed when they are able to terminate for convenience without payment of a substantive penalty under the contract. Additionally, as a practical expedient of ASC 606, Revenue from Contracts with Customers we have not disclosed the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. As of November 30, 2022 and February 28, 2022, approximately $
Contract Assets and Liabilities
Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. Contract assets were $
As of February 4, 2021, a fair value adjustment of $
Sales Commissions
With the adoption of ASC 606 and ASC 340-40, Contracts with Customers in March 2019, we began deferring and amortizing sales commissions that are incremental and directly related to obtaining client contracts.
26
Amortization expense of $
18. Severance and Exit Costs
In connection with acquisitions, we conduct pre and post-acquisition related operational reviews to reallocate resources to strategic areas of the business. The operational reviews resulted in workforce reductions, lease obligations related to properties that were vacated and other expenses.
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Severance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Lease exits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total severance and exit costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
In addition, during the second quarter of fiscal 2023, we accrued $
Included in accounts payable and accrued liabilities as of November 30, 2022 and February 28, 2022 was a restructuring liability balance, primarily consisting of lease related obligations, of $
The following table reflects the changes in the severance and exit cost accruals from March 1, 2022 through November 30, 2022 and March 1, 2021 through February 28, 2022:
($ in thousands) |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Beginning of period |
|
$ |
|
|
$ |
|
||
Payments |
|
|
( |
) |
|
|
( |
) |
Impairment of right-of-use assets |
|
|
( |
) |
|
|
( |
) |
Expenses |
|
|
|
|
|
|
||
End of period |
|
$ |
|
|
$ |
|
In the 2022 Form 10-K, $
19. Warrants
As of November 30, 2022 and February 28, 2022, there were an aggregate of
27
20. Stockholders' Equity
Class A Common Stock
We are authorized to issue
Class V Common Stock
We were authorized to issue
The holders of Common Units participate in net income or loss allocations and distributions of E2open Holdings.
The following table reflects the changes in our outstanding stock:
|
|
Class A |
|
|
Class V |
|
|
Series B-1 |
|
|
Series B-2 |
|
||||
Balance, February 28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Conversion of Common Units (1) |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Vesting of restricted awards, net of shares |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance, November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Share Repurchase Program
On January 20, 2022, the board of directors approved a $
We will record all share repurchases based on the trade date. Shares of our Class A Common Stock repurchased under the 2022 Share Repurchase Program will be recorded as treasury stock, at cost, but may from time to time be retired.
21. Noncontrolling Interests
Noncontrolling interest represents the portion of E2open Holdings that we control and consolidate but do not own. As of November 30, 2022 and February 28, 2022, the noncontrolling interests represent a
28
Generally, Common Units participate in net income or loss allocations and distributions and entitle their holder to the right, subject to the terms set forth in the limited liability agreement, to require E2open Holdings to redeem all or a portion of the Common Units held by such participant. At our option, we may satisfy this redemption with cash or by exchanging Class V Common Stock for Class A Common Stock on a
During the three months ended November 30, 2022,
As of November 30, 2022 and February 28, 2022, there were a total of
We follow the guidance issued by the FASB regarding the classification and measurement of redeemable securities. Accordingly, we have determined that the Common Units meet the requirements to be classified as permanent equity.
22. Other Comprehensive Loss
Accumulated other comprehensive loss in the equity section of our Condensed Consolidated Balance Sheets includes:
($ in thousands) |
|
Foreign Currency Translation Adjustment |
|
|
Unrealized Holding Gains (Losses) on Derivatives |
|
|
Total |
|
|||
Balance, February 28, 2022 |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Tax effects |
|
|
|
|
|
— |
|
|
|
|
||
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, November 30, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The effect of amounts reclassified out of unrealized holding losses on derivatives into net income (loss) was as follows:
($ in thousands) |
|
Three Months Ended November 30, 2022 |
|
|
Nine Months Ended November 30, 2022 |
|
||
Reclassifications: |
|
|
|
|
|
|
||
Losses on cash flows hedges, net of tax |
|
|
|
|
|
|
||
Cost of revenue |
|
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
We did not reclass any items to the Condensed Consolidated Statements of Operations from accumulated other comprehensive loss during the three and nine months ended November 30, 2021.
Accumulated foreign currency translation adjustments are reclassified to net income (loss) when realized upon sale or upon complete, or substantially complete, liquidation of the investment in the foreign entity.
See Note 15, Financial Instruments for additional information related to our derivative instruments.
29
23. Earnings Per Share
Basic earnings per share is calculated as net income (loss) divided by the average number of shares of common stock outstanding. Diluted earnings per share assumes, when dilutive, the issuance of the net incremental shares from options and restricted shares.
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
(in thousands, except per share data) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share: |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Less: Net income (loss) attributable to |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net income (loss) attributable to E2open Parent |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Numerator - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to E2open Parent |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Add: Net income (loss) and tax effect attributable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income (loss) attributable to E2open Parent |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share - basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Time based restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Weighted average shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted net income (loss) per common share |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Potential common shares issuable to employee or directors upon exercise or conversion of shares under our share-based compensation plans and upon exercise of warrants are excluded from the computation of diluted earnings per common share when the effect would be anti-dilutive. All potential common shares are anti-dilutive in periods of net loss available to common stockholders.
The following table summarizes the weighted-average potential common shares excluded from diluted income (loss) per common share as their effect would be anti-dilutive:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Shares related to Series B-1 common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to Series B-2 common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to restricted common units Series 2 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to warrants (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to Common Units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share related to performance based restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to time based restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Units/Shares excluded from the dilution computation |
|
|
|
|
|
|
|
|
|
|
|
|
30
24. Share-Based Compensation
2021 Incentive Plan
The E2open Parent Holdings, Inc. 2021 Omnibus Incentive Plan (2021 Incentive Plan) became effective on the Closing Date with the approval of CCNB1's shareholders and board of directors. The 2021 Incentive Plan allows us to make equity and equity-based incentive awards to officers, employees, directors and consultants. There were
Our board of directors have approved the grant of options and RSUs under the 2021 Incentive Plan.
The fiscal year 2022 options were performance based and measured based on obtaining an organic growth target over a
The RSUs are either performance based or time based. The fiscal year 2022 performance based RSUs were measured based on obtaining an organic growth target over a
During fiscal 2023 our board of directors approved a company-wide share-based compensation program under our 2021 Incentive Plan. Under the program, approximately
The cash-settled RSUs must be settled in cash and are accounted for as liability-type awards. The fair value of these cash-settled RSUs equals the value of our Class A Common Stock on the date of grant and is remeasured at the end of each reporting period at fair value. The change in fair value will be recorded in share-based compensation expense in the Condensed Consolidated Statements of Operations. The liability for the cash-settled RSUs was negligible as of November 30, 2022 and is included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets. As of November 30, 2022, there were
As of November 30, 2022, there were
31
Activity under the 2021 Incentive Plan related to options was as follows:
|
|
Number of Shares |
|
|
Weighted Average Exercise Price Per Share |
|
|
Weighted Average Remaining Contractual Life (in years) |
|
|||
Balance, February 28, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Forfeited/Expired |
|
|
( |
) |
|
|
|
|
|
|
||
Balance, November 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Vested and exercisable as of November 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
Number of Shares |
|
|
Weighted Average Exercise Price Per Share |
|
|
Weighted Average Remaining Contractual Life (in years) |
|
|||
Balance, February 28, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Granted |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
Balance, November 30, 2021 |
|
|
|
|
$ |
|
|
|
|
As of November 30, 2022, there was $
Activity under the 2021 Incentive Plan related to RSUs was as follows:
|
|
Number of Units |
|
|
Weighted Average Grant Date Fair Value Per Unit |
|
|
Weighted Average Remaining Recognition Period (in years) |
|
|||
Balance, February 28, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Added by performance factor |
|
|
|
|
|
|
|
|
|
|||
Released |
|
|
( |
) |
|
|
|
|
|
|
||
Canceled and forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
Balance, November 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
Number of Units |
|
|
Weighted Average Grant Date Fair Value Per Unit |
|
|
Weighted Average Remaining Recognition Period (in years) |
|
|||
Balance, February 28, 2021 |
|
|
|
|
$ |
|
|
|
— |
|
||
Granted |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
Balance, November 30, 2021 |
|
|
|
|
$ |
|
|
|
|
As of November 30, 2022, there was $
32
Activity under the 2021 Incentive Plan related to cash-settled RSUs was as follows:
|
|
Number of Units |
|
|
Weighted Average Grant Date Fair Value Per Share |
|
|
Weighted Average Remaining Recognition Period (in years) |
|
|||
Balance, February 28, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
Granted |
|
|
|
|
|
|
|
|
|
|||
Balance, November 30, 2022 |
|
|
|
|
$ |
|
|
|
|
As of November 30, 2022, there was $
The estimated grant-date fair values of the options granted during the nine months ended November 30, 2022 were calculated using the Black-Scholes option-pricing valuation model, based on the following assumptions:
Expected term (in years) |
|
|
Expected equity price volatility |
|
|
Risk-free interest rate |
|
|
Expected dividend yield |
|
The table below sets forth the functional classification in the Condensed Consolidated Statements of Operations of our equity-based compensation expense:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total share-based compensation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
25. Leases
We account for leases in accordance with ASC 842, Leases which requires lessees to recognize lease liabilities and right-of-use (ROU) assets on the balance sheet for most operating leases. We made the accounting policy election not to apply the recognition provisions of ASC 842 to short-term leases which are leases with a lease term of 12 months or less. Instead, we recognize the lease payments for short-term leases on a straight-line basis over the lease term.
Operating lease liabilities reflect our obligation to make future lease payments for real estate locations. Lease terms are comprised of contractual terms. Payments are discounted using the rate we would pay to borrow amounts equal to the lease payments over the lease term (our incremental borrowing rate). We do not separate lease and non-lease components for contracts in which we are the lessee. ROU assets are measured based on lease liabilities adjusted for incentives and timing differences between operating lease expense and payments, recognized on a straight-line basis over the lease term. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are recognized as incurred. Common area maintenance and other executory costs are the main components of variable lease payments. Operating and variable lease expenses are recorded in general and administrative expense in the Condensed Consolidated Statements of Operations.
Real Estate Leases
We lease our primary office space under non-cancelable operating leases with various expiration dates through
Several of the operating lease agreements require us to provide security deposits. As of November 30, 2022, and February 28, 2022, lease deposits were $
33
During the three and nine months ended November 2022, we incurred a $
Vehicle Leases
We lease vehicles under non-cancelable operating lease arrangements which have various expiration dates through
Equipment Leases
We purchase certain equipment under non-cancelable financing lease arrangements which are primarily related to software and computer equipment and which have various expiration dates through
Balance Sheet Presentation
The following tables present the amounts and classifications of our estimated ROU assets, net and lease liabilities:
($ in thousands) |
|
Balance Sheet Location |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Operating lease right-of-use assets |
|
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
Finance lease right-of-use asset |
|
|
|
|
|
|
|
|||
Total right-of-use assets |
|
|
|
$ |
|
|
$ |
|
($ in thousands) |
|
Balance Sheet Location |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Operating lease liability - current |
|
Current portion of operating lease obligations |
|
$ |
|
|
$ |
|
||
Operating lease liability |
|
Operating lease obligations |
|
|
|
|
|
|
||
Finance lease liability - current |
|
Current portion of finance lease obligations |
|
|
|
|
|
|
||
Finance lease liability |
|
Finance lease obligations |
|
|
— |
|
|
|
|
|
Total lease liabilities |
|
|
|
$ |
|
|
$ |
|
Lease Cost and Cash Flows
The following table summarizes our total lease cost:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of right-of-use asset |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest on lease liability |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sublease income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Operating net lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Short-term lease expense was immaterial for the three and nine months ended November 30, 2022. There was
34
Supplemental cash flow information related to leases was as follows:
|
|
Nine Months Ended November 30, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash outflows from operating leases |
|
$ |
|
|
$ |
|
The following table presents the weighted-average remaining lease terms and discount rates of our leases:
|
|
Nine Months Ended November 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Weighted-average remaining lease term (in years): |
|
|
|
|
|
|
||
Finance lease |
|
|
|
|
|
|
||
Operating lease |
|
|
|
|
|
|
||
Weighted-average discount rate: |
|
|
|
|
|
|
||
Finance lease |
|
|
% |
|
|
% |
||
Operating lease |
|
|
% |
|
|
% |
Lease Liability Maturity Analysis
The following table reflects the undiscounted future cash flows utilized in the calculation of the lease liabilities as of November 30, 2022:
($ in thousands) |
|
Operating Leases |
|
|
Finance Leases |
|
||
December 2022 - February 2023 |
|
$ |
|
|
$ |
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less: Present value discount |
|
|
( |
) |
|
|
( |
) |
Lease liabilities |
|
$ |
|
|
$ |
|
26. Income Taxes
We calculate the provision for income taxes during interim periods by applying an estimate of the forecasted annual effective tax rate for the full fiscal year to "ordinary" income or loss (pretax income or loss excluding discrete items) for the reporting period. Our provision for income taxes was a benefit of $
The loss before income taxes of $
As of November 30, 2022 and February 28, 2022, total gross unrecognized tax benefits were $
35
Inflation Reduction Act of 2022
27. Commitments and Contingencies
From time to time, we are subject to contingencies that arise in the ordinary course of business. We record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We do not currently believe the resolution of any such contingencies will have a material adverse effect upon our Condensed Consolidated Balance Sheets, Statements of Operations or Statements of Cash Flows.
28. Supplemental Cash Flow Information
Supplemental cash flow information and non-cash investing and financing activities are as follows:
|
|
Nine Months Ended November 30, |
|
|||||
(In thousands) |
|
2022 |
|
|
2021 |
|
||
Supplemental cash flow information - Cash paid for: |
|
|
|
|
|
|
||
Interest |
|
$ |
|
|
$ |
|
||
Income taxes |
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Capital expenditures included in accounts payable and accrued liabilities |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for operating lease obligations |
|
|
|
|
|
|
||
Shares withheld for taxes on vesting of restricted stock |
|
|
|
|
|
— |
|
|
Conversion of Common Units to Class A Common Stock |
|
|
|
|
|
|
||
Conversion of Series B1 common stock to Class A Common Stock |
|
|
— |
|
|
|
|
|
Business Combination purchase price adjustment |
|
|
— |
|
|
|
|
|
Issuance of common stock for BluJay Acquisition |
|
|
— |
|
|
|
|
|
Deferred taxes related to issuance of common stock for BluJay Acquisition |
|
|
— |
|
|
|
|
29. Subsequent Events
On January 9, 2023, we repaid the outstanding $
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This item contains a discussion of our business, including a general overview of our business, results of operations, liquidity and capital resources as well as quantitative and qualitative disclosures about market risk.
The following discussion should be read in conjunction with Part II, Item 7., Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K and the unaudited condensed financial statements and related notes beginning on page 5. This Item 2 contains "forward looking" statements that involve risks and uncertainties. See Forward-Looking Statements at the beginning of this Quarterly Report.
36
Overview
We are a leading provider of cloud-based, end-to-end SCM software. Our platform spans many key strategic and operational areas including omni-channel, demand sensing, supply planning, global trade management, transportation and logistics and manufacturing and supply management. Our software combines networks, data and applications to provide a deeply embedded, mission-critical platform that allows clients to optimize their channel and supply chains by accelerating growth, reducing costs, increasing visibility and driving improved resiliency. Given the mission-critical nature of our solutions, we maintain long-term relationships with our clients, which is reflected by our high gross retention and long client tenure. In aggregate, we serve clients in all major countries in the world across a wide range of end-markets, including consumer goods, food and beverage, manufacturing, retail, technology and transportation, among others.
Recent Events
On March 2, 2022, E2open, LLC acquired Logistyx for a purchase price of $185 million, with an estimated fair value of $183.4 million, including $90 million paid in cash at closing. An additional $95 million was paid in two installments on May 31, 2022 and September 1, 2022. We had the option to finance the remaining payments, at our discretion, through cash or a combination of cash and Class A Common Stock. The May 31, 2022 payment of $37.4 million was paid in cash. On September 1, 2022, E2open, LLC made a cash payment of $54.0 million to Logistyx as the final installment payment for the Logistyx Acquisition which reflected a working capital adjustment of $3.6 million. The Logistyx sellers disputed the working capital adjustment pursuant to the terms of the Membership Interest Purchase Agreement. During October 2022, the parties agreed to a working capital adjustment of $2.6 million with the additional payment for working capital made to Logistyx on December 5, 2022.
During the second quarter of fiscal 2023, the market price of our Class A Common Stock and market capitalization declined significantly. This decline resulted in a triggering event, as such an interim goodwill impairment assessment was performed. We calculated the fair value of E2open under three different methods: discounted cash flow method, guideline public company method and guideline transaction method. The discounted cash flow method was based on the present value of estimated future cash flows which were based on management's estimates of revenue growth rates and net operating income margins, taking into consideration market and industry conditions. Under the guideline public company method, the fair value was based on forward-looking earnings multiples derived from comparable publicly traded companies with similar market position and size. Under the guideline transaction method, the fair value was based on pricing multiples derived from recently sold companies with similar characteristics to ours. The three approaches generated similar results and indicated that the fair value of E2open's equity and goodwill was less than its carrying amount. Therefore, in the second quarter of fiscal 2023, we recognized an impairment charge of $514.8 million to goodwill. See Note 7, Goodwill to the Notes to the Unaudited Condensed Consolidated Financial Statements.
37
Results of Operations
The following table is our Unaudited Condensed Consolidated Statements of Operations for the periods indicated:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
$ |
164,893 |
|
|
$ |
137,002 |
|
|
$ |
485,950 |
|
|
$ |
281,408 |
|
Cost of revenue |
|
|
(80,750 |
) |
|
|
(72,786 |
) |
|
|
(242,682 |
) |
|
|
(150,496 |
) |
Total gross profit |
|
|
84,143 |
|
|
|
64,216 |
|
|
|
243,268 |
|
|
|
130,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
24,939 |
|
|
|
25,000 |
|
|
|
73,088 |
|
|
|
56,909 |
|
Sales and marketing |
|
|
20,448 |
|
|
|
18,101 |
|
|
|
67,348 |
|
|
|
41,789 |
|
General and administrative |
|
|
23,073 |
|
|
|
22,871 |
|
|
|
66,774 |
|
|
|
49,989 |
|
Acquisition-related expenses |
|
|
1,969 |
|
|
|
33,216 |
|
|
|
14,313 |
|
|
|
50,168 |
|
Amortization of acquired intangible assets |
|
|
19,965 |
|
|
|
19,470 |
|
|
|
62,523 |
|
|
|
26,843 |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
514,816 |
|
|
|
— |
|
Total operating expenses |
|
|
90,394 |
|
|
|
118,658 |
|
|
|
798,862 |
|
|
|
225,698 |
|
Loss from operations |
|
|
(6,251 |
) |
|
|
(54,442 |
) |
|
|
(555,594 |
) |
|
|
(94,786 |
) |
Interest and other expense, net |
|
|
(21,270 |
) |
|
|
(10,769 |
) |
|
|
(54,732 |
) |
|
|
(22,004 |
) |
Gain (loss) from change in tax receivable |
|
|
2,697 |
|
|
|
(1,470 |
) |
|
|
9,089 |
|
|
|
(4,606 |
) |
Gain (loss) from change in fair value of warrant |
|
|
16,150 |
|
|
|
(7,232 |
) |
|
|
36,764 |
|
|
|
(48,448 |
) |
Gain (loss) from change in fair value of contingent |
|
|
6,300 |
|
|
|
(1,140 |
) |
|
|
17,760 |
|
|
|
(91,180 |
) |
Total other income (expenses) |
|
|
3,877 |
|
|
|
(20,611 |
) |
|
|
8,881 |
|
|
|
(166,238 |
) |
Loss before income tax provision |
|
|
(2,374 |
) |
|
|
(75,053 |
) |
|
|
(546,713 |
) |
|
|
(261,024 |
) |
Income tax benefit |
|
|
7,877 |
|
|
|
10,764 |
|
|
|
130,010 |
|
|
|
3,392 |
|
Net income (loss) |
|
|
5,503 |
|
|
|
(64,289 |
) |
|
|
(416,703 |
) |
|
|
(257,632 |
) |
Less: Net income (loss) attributable to |
|
|
698 |
|
|
|
(5,072 |
) |
|
|
(41,464 |
) |
|
|
(35,640 |
) |
Net income (loss) attributable to E2open Parent |
|
$ |
4,805 |
|
|
$ |
(59,217 |
) |
|
$ |
(375,239 |
) |
|
$ |
(221,992 |
) |
Net income (loss) attributable to E2open Parent |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.02 |
|
|
$ |
(0.19 |
) |
|
$ |
(1.24 |
) |
|
$ |
(0.98 |
) |
Diluted |
|
$ |
0.02 |
|
|
$ |
(0.19 |
) |
|
$ |
(1.24 |
) |
|
$ |
(0.98 |
) |
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
302,201 |
|
|
|
308,132 |
|
|
|
301,822 |
|
|
|
227,186 |
|
Diluted |
|
|
302,359 |
|
|
|
308,132 |
|
|
|
301,822 |
|
|
|
227,186 |
|
In the discussion of our results of operations, we may quantitatively disclose the impact of our acquired products and services to the extent they remain ascertainable. Revenue and expense contributions from our acquisitions for the respective period comparisons generally were not separately identifiable due to our strategy of rapid integration of these businesses into our existing operations.
38
Three Months Ended November 30, 2022 compared to Three Months Ended November 30, 2021
Revenue
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
$ |
134,884 |
|
|
$ |
106,969 |
|
|
$ |
27,915 |
|
|
|
26 |
% |
Professional services and other |
|
|
30,009 |
|
|
|
30,033 |
|
|
|
(24 |
) |
|
|
0 |
% |
Total revenue |
|
$ |
164,893 |
|
|
$ |
137,002 |
|
|
$ |
27,891 |
|
|
|
20 |
% |
Percentage of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
|
82 |
% |
|
|
78 |
% |
|
|
|
|
|
|
||
Professional services and other |
|
|
18 |
% |
|
|
22 |
% |
|
|
|
|
|
|
||
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
Subscriptions revenue was $134.9 million for the three months ended November 30, 2022, a $27.9 million, or 26%, increase compared to subscriptions revenue of $107.0 million for the three months ended November 30, 2021. The increase in subscriptions revenue was primarily due to the Logistyx Acquisition and new organic subscription sales predominantly driven by increases in products utilized across our current client portfolio, as well as the $10.4 million amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination in the third quarter of fiscal 2022. With the early adoption of ASU 2021-08, a fair value adjustment to deferred revenue for the BluJay and Logistyx acquisitions was not recorded; therefore, amortization of the fair value adjustment to deferred revenue similar to the Business Combination adjustment did not occur for the BluJay and Logistyx acquisitions.
Professional services and other revenue was flat between periods at $30.0 million for the three months ended November 30, 2022 and 2021. The increase in professional services and other revenue was a result of the Logistyx Acquisition offset by lower revenue driven by our strategic focus on system integrator partnership initiatives, incremental data subscription sales and macroeconomic impact from the technology sector.
Our subscriptions revenue as a percentage of total revenue increased to 82% for the third quarter of fiscal 2023 compared to 78% for the third quarter of fiscal 2022. The third quarter of fiscal 2022 included $10.4 million amortization related to the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination, reducing subscription revenue as a percentage of total revenue for that period.
Cost of Revenue, Gross Profit and Gross Margin
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
$ |
35,931 |
|
|
$ |
30,163 |
|
|
$ |
5,768 |
|
|
|
19 |
% |
Professional services and other |
|
|
20,417 |
|
|
|
17,587 |
|
|
|
2,830 |
|
|
|
16 |
% |
Amortization of acquired intangible assets |
|
|
24,402 |
|
|
|
25,036 |
|
|
|
(634 |
) |
|
|
-3 |
% |
Total cost of revenue |
|
$ |
80,750 |
|
|
$ |
72,786 |
|
|
$ |
7,964 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
$ |
74,551 |
|
|
$ |
51,771 |
|
|
$ |
22,780 |
|
|
|
44 |
% |
Professional services and other |
|
|
9,592 |
|
|
|
12,445 |
|
|
|
(2,853 |
) |
|
|
-23 |
% |
Total gross profit |
|
$ |
84,143 |
|
|
$ |
64,216 |
|
|
$ |
19,927 |
|
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
|
55 |
% |
|
|
48 |
% |
|
|
|
|
|
|
||
Professional services and other |
|
|
32 |
% |
|
|
41 |
% |
|
|
|
|
|
|
||
Total gross margin |
|
|
51 |
% |
|
|
47 |
% |
|
|
|
|
|
|
Cost of subscriptions was $35.9 million for the three months ended November 30, 2022, a $5.8 million, or 19%, increase compared to $30.2 million for the three months ended November 30, 2021. This increase was primarily driven by a $3.9 million increase in software and hosting costs, predominately related to the Logistyx Acquisition.
39
Cost of professional services and other revenue was $20.4 million for the three months ended November 30, 2022, a $2.8 million, or 16%, increase compared to $17.6 million for the three months ended November 30, 2021. Personnel costs such as salaries increased $1.1 million, primarily due to the Logistyx Acquisition in March 2022. Additionally, consulting expenses increased $2.3 million when compared to the prior year, primarily driven by our investment in strategic system integrator partnership initiatives.
Amortization of acquired intangible assets was $24.4 million for the three months ended November 30, 2022, a $0.6 million, or 3%, decrease compared to $25.0 million for the three months ended November 30, 2021, driven primarily by the Logistyx Acquisition in March 2022.
Our subscriptions gross margin was 55% for the third quarter of fiscal 2023 compared to 48% for the third quarter of fiscal 2022 primarily due to the $10.4 million amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination in fiscal 2022 offset by the additional revenue from the Logistyx Acquisition in fiscal 2023. With the early adoption of ASU 2021-08, the BluJay and Logistyx deferred revenue was recorded under ASC 606 and not at fair value at the acquisition date; therefore, amortization of the fair value adjustment to deferred revenue similar to the Business Combination adjustment did not occur for the BluJay or Logistyx acquisitions.
Our professional services gross margin was down for the third quarter of fiscal 2023 at 32% compared to 41% in the third quarter of fiscal 2022 primarily due to our investment in strategic system integrator partnership initiatives.
Research and Development
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Research and development |
|
$ |
24,939 |
|
|
$ |
25,000 |
|
|
$ |
(61 |
) |
|
|
0 |
% |
Percentage of revenue |
|
|
15 |
% |
|
|
18 |
% |
|
|
|
|
|
|
Research and development expenses were $24.9 million for the three months ended November 30, 2022, a $0.1 million decrease compared to $25.0 million in the prior year. The decrease was primarily due to a $2.7 million decrease in incentive compensation, partially offset by a $1.1 million increase in depreciation expense as compared to the prior year period.
Sales and Marketing
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Sales and marketing |
|
$ |
20,448 |
|
|
$ |
18,101 |
|
|
$ |
2,347 |
|
|
|
13 |
% |
Percentage of revenue |
|
|
12 |
% |
|
|
13 |
% |
|
|
|
|
|
|
Sales and marketing expenses were $20.4 million for the three months ended November 30, 2022, a $2.3 million, or 13%, increase compared to $18.1 million in the prior year. The increase was primarily driven by a $1.8 million increase in digital and social marketing related to the launch of our new website, company store and new brand.
General and Administrative
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
General and administrative |
|
$ |
23,073 |
|
|
$ |
22,871 |
|
|
$ |
202 |
|
|
|
1 |
% |
Percentage of revenue |
|
|
14 |
% |
|
|
17 |
% |
|
|
|
|
|
|
General and administrative expenses were $23.1 million for the three months ended November 30, 2022, a $0.2 million increase compared to $22.9 million in the prior year. During the third quarter of fiscal 2023, we incurred a $1.8 million impairment on our operating lease ROU assets and leasehold improvements due to vacating locations with the intent to sublease them. This increase was partially offset by a $1.5 million decrease in personnel costs such as salaries and incentive compensation compared to the prior year period and $1.1 million decrease due to the BluJay Acquisition in September 2021.
40
Other Operating Expenses
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Acquisition and other related expenses |
|
$ |
1,969 |
|
|
$ |
33,216 |
|
|
$ |
(31,247 |
) |
|
|
-94 |
% |
Amortization of acquired intangible assets |
|
|
19,965 |
|
|
|
19,470 |
|
|
|
495 |
|
|
|
3 |
% |
Total other operating expenses |
|
$ |
21,934 |
|
|
$ |
52,686 |
|
|
$ |
(30,752 |
) |
|
|
-58 |
% |
Acquisition and other related expenses were $2.0 million for the three months ended November 30, 2022, a $31.2 million decrease compared to $33.2 million for the three months ended November 30, 2021. The decrease was mainly related to legal and consulting expenses associated with the BluJay Acquisition in fiscal 2022.
Amortization of acquired intangible assets were $20.0 million for the three months ended November 30, 2022, a $0.5 million, or 3%, increase, compared to $19.5 million for the three months ended November 30, 2021. The increase was due to the Logistyx Acquisition in March 2022.
Goodwill Impairment
We did not incur a goodwill impairment charge during the third quarter of fiscal 2023 or 2022.
Interest and Other Expense, Net
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Interest and other expense, net |
|
$ |
(21,270 |
) |
|
$ |
(10,769 |
) |
|
$ |
(10,501 |
) |
|
|
98 |
% |
Interest and other expense, net was $21.3 million for the three months ended November 30, 2022, a $10.5 million increase compared to $10.8 million in the prior year. The increase was primarily driven by the additional term loans used for the BluJay Acquisition in September 2021 and Logistyx Acquisition in March 2022, as well as higher interest rates in fiscal 2023.
Gain (Loss) from Change in Tax Receivable Agreement
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Gain (loss) from change in tax receivable |
|
$ |
2,697 |
|
|
$ |
(1,470 |
) |
|
$ |
4,167 |
|
|
nm |
During the three months ended November 30, 2022, we recorded a gain of $2.7 million related to the change in the fair value of the tax receivable agreement liability, including interest, compared to a $1.5 million expense during the three months ended November 30, 2021. Pursuant to ASC 805, Business Combination and relevant tax law, we calculated the fair value of the tax receivable agreement payments and identified the timing of the utilization of the tax attributes. The tax receivable agreement liability, related to exchanges as of the Business Combination date, is revalued at the end of each reporting period with the gain or loss as well as the associated interest reflected in gain (loss) from change in tax receivable agreement liability in the Unaudited Condensed Consolidated Statements of Operations in the period in which the event occurred.
In addition, under ASC 450, transactions with partnership unit holders after the acquisition date will result in additional Tax Receivable Agreement liabilities that are recorded on a gross undiscounted basis. During the three months ended November 30, 2022 and 2021, the Tax Receivable Agreement liability under ASC 450 increased by $0.4 million and $3.1 million, respectively.
Gain (Loss) from Change in Fair Value of Warrant Liability
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Gain (loss) from change in fair value of warrant |
|
$ |
16,150 |
|
|
$ |
(7,232 |
) |
|
$ |
23,382 |
|
|
nm |
41
We recorded a gain of $16.2 million during the three months ended November 30, 2022, a $23.4 million increase compared to a loss of $7.2 million in the prior year for the change in fair value on the revaluation of our warrant liability associated with our public, private placement and forward purchase warrants. We are required to revalue the warrants at the end of each reporting period and reflect in the Unaudited Condensed Consolidated Statements of Operations a gain or loss from the change in fair value of the warrant liability in the period in which the change occurred.
Gain (Loss) from Change in Fair Value of Contingent Consideration
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Gain (loss) from change in fair value of |
|
$ |
6,300 |
|
|
$ |
(1,140 |
) |
|
$ |
7,440 |
|
|
nm |
We recorded a gain of $6.3 million during the three months ended November 30, 2022, a $7.4 million increase compared to a loss of $1.1 million in the prior year for the change in fair value on the revaluation of our contingent consideration associated with our restricted B-2 common stock and Series 2 RCUs. We are required to revalue the contingent consideration at the end of each reporting period or upon conversion and reflect in the Unaudited Condensed Consolidated Statements of Operations a gain or loss from the change in fair value of the contingent consideration in the period in which the change occurred.
Provision for Income Taxes
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Loss before income taxes |
|
$ |
(2,374 |
) |
|
$ |
(75,053 |
) |
|
$ |
72,679 |
|
|
|
-97 |
% |
Income tax benefit |
|
|
7,877 |
|
|
|
10,764 |
|
|
|
(2,887 |
) |
|
|
-27 |
% |
Loss before income taxes was $2.4 million for the three months ended November 30, 2022, a $72.7 million decrease compared to $75.1 million for the three months ended November 30, 2021. The decrease in the loss was primarily related to a $19.9 million higher gross profit due to the Logistyx Acquisition and a decrease in the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination as well as a $31.2 million reduction in acquisition and other related expenses due to the BluJay Acquisition in September 2021. Additionally, there was a $23.4 million increase in the gain associated with the change in the fair value of the warrant liability and a $7.4 million increase in the gain associated with the fair value adjustments for the fair contingent consideration liability related to the restricted Series B-2 common stock and Series 2 RCUs when compared to the prior year. These gains were partially offset by $10.5 million of higher interest expense.
Income tax benefit was $7.9 million, or 331.8%, for the three months ended November 30, 2022 compared to $10.8 million, or 14.3%, for the three months ended November 30, 2021. The change in our effective tax rate between periods was due to changes in the impact of book income and losses of affiliates on the carrying amount of our partnership investment, year-over-year changes in book losses in certain jurisdictions for which no benefit can be recognized and changes in the mark-to-market gains and losses on certain contingent liabilities. For the three months ended November 30, 2021, in accordance with ASC 740-20-45-11, we accounted for the tax effect of the step-up in income tax basis related to transactions with or among shareholders and recognized a deferred tax asset and corresponding increase in stockholders' equity of $36.8 million.
Nine Months Ended November 30, 2022 compared to Nine Months Ended November 30, 2021
Revenue
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
$ |
396,052 |
|
|
$ |
219,728 |
|
|
$ |
176,324 |
|
|
|
80 |
% |
Professional services and other |
|
|
89,898 |
|
|
|
61,680 |
|
|
|
28,218 |
|
|
|
46 |
% |
Total revenue |
|
$ |
485,950 |
|
|
$ |
281,408 |
|
|
$ |
204,542 |
|
|
|
73 |
% |
Percentage of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
|
82 |
% |
|
|
78 |
% |
|
|
|
|
|
|
||
Professional services and other |
|
|
18 |
% |
|
|
22 |
% |
|
|
|
|
|
|
||
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
42
Subscriptions revenue was $396.1 million for the nine months ended November 30, 2022, a $176.3 million, or 80%, increase compared to subscriptions revenue of $219.7 million for the nine months ended November 30, 2021. The increase in subscriptions revenue was primarily due to the BluJay Acquisition, Logistyx Acquisition and new organic subscription sales predominantly driven by increases in products utilized across our current client portfolio, as well as the $47.1 million amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination in the first nine months of fiscal 2022. With the early adoption of ASU 2021-08, a fair value adjustment to deferred revenue for the BluJay and Logistyx acquisitions was not recorded; therefore, amortization of the fair value adjustment to deferred revenue similar to the Business Combination adjustment did not occur for the BluJay and Logistyx acquisitions.
Professional services and other revenue was $89.9 million for the nine months ended November 30, 2022, a $28.2 million, or 46%, increase compared to $61.7 million for the nine months ended November 30, 2021. The increase was primarily related to the BluJay Acquisition and Logistyx Acquisition.
Our subscriptions revenue as a percentage of total revenue increased to 82% for the first nine months of fiscal 2023 compared to 78% for the first nine months of fiscal 2022. The first nine months of fiscal 2022 included $47.1 million amortization related to the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination, reducing subscription revenue as a percentage of total revenue for that period.
Cost of Revenue, Gross Profit and Gross Margin
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
$ |
105,367 |
|
|
$ |
62,917 |
|
|
$ |
42,450 |
|
|
|
67 |
% |
Professional services and other |
|
|
63,446 |
|
|
|
38,694 |
|
|
|
24,752 |
|
|
|
64 |
% |
Amortization of acquired intangible assets |
|
|
73,869 |
|
|
|
48,885 |
|
|
|
24,984 |
|
|
|
51 |
% |
Total cost of revenue |
|
$ |
242,682 |
|
|
$ |
150,496 |
|
|
$ |
92,186 |
|
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
$ |
216,816 |
|
|
$ |
107,927 |
|
|
$ |
108,889 |
|
|
nm |
|
|
Professional services and other |
|
|
26,452 |
|
|
|
22,985 |
|
|
|
3,467 |
|
|
|
15 |
% |
Total gross profit |
|
$ |
243,268 |
|
|
$ |
130,912 |
|
|
$ |
112,356 |
|
|
|
86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subscriptions |
|
|
55 |
% |
|
|
49 |
% |
|
|
|
|
|
|
||
Professional services and other |
|
|
29 |
% |
|
|
37 |
% |
|
|
|
|
|
|
||
Total gross margin |
|
|
50 |
% |
|
|
47 |
% |
|
|
|
|
|
|
Cost of subscriptions was $105.4 million for the nine months ended November 30, 2022, a $42.5 million, or 67%, increase compared to $62.9 million for the nine months ended November 30, 2021. This increase was primarily driven by $28.3 million related to the BluJay and Logistyx acquisitions and an increase in personnel costs for items such as salaries and incentive compensation. Additionally, there was an increase of $13.9 million for software and hosting costs. Most of this increase related to the BluJay and Logistyx acquisitions.
Cost of professional services and other revenue was $63.4 million for the nine months ended November 30, 2022, a $24.8 million, or 64%, increase compared to $38.7 million for the nine months ended November 30, 2021. The BluJay Acquisition in fiscal 2022, Logistyx Acquisition in fiscal 2023, increased personnel costs such as salaries and incentive compensation, our investment in strategic system integrator partnership initiatives and increased travel accounted for $24.1 million of the increase in the cost of professional services and other revenue.
Amortization of acquired intangible assets was $73.9 million for the nine months ended November 30, 2022, a $25.0 million, or 51%, increase compared to $48.9 million for the nine months ended November 30, 2021, driven by the BluJay Acquisition in September 2021 and Logistyx Acquisition in March 2022.
Our subscriptions gross margin was 55% for the first nine months of fiscal 2023 as compared to 49% for the first nine months of fiscal 2022 primarily due to the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination offset by the additional revenue from the BluJay and Logistyx acquisitions in fiscal 2023. With the early adoption of ASU 2021-08, the BluJay and Logistyx deferred revenue was recorded under ASC 606 and not at fair value at the acquisition date; therefore, amortization of the fair value adjustment to deferred revenue similar to the Business Combination adjustment did not occur for the BluJay or Logistyx acquisitions.
43
Our professional services gross margin was down to 29% for the first nine months of fiscal 2023 compared to 37% for the first nine months of fiscal 2022 primarily due to our investment in strategic system integrator partnership initiatives.
Research and Development
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Research and development |
|
$ |
73,088 |
|
|
$ |
56,909 |
|
|
$ |
16,179 |
|
|
|
28 |
% |
Percentage of revenue |
|
|
15 |
% |
|
|
20 |
% |
|
|
|
|
|
|
Research and development expenses were $73.1 million for the nine months ended November 30, 2022, a $16.2 million, or 28%, increase compared to $56.9 million in the prior year. The increase was primarily due to $13.6 million related to the BluJay and Logistyx acquisitions as well as major strategic partnership initiatives around product development efforts during fiscal year 2023, which resulted in net increased personnel costs such as salaries and incentive compensation and consulting expenses as compared to the prior year period. Additionally, there was an increase of $1.0 million for software and hosting costs.
Sales and Marketing
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Sales and marketing |
|
$ |
67,348 |
|
|
$ |
41,789 |
|
|
$ |
25,559 |
|
|
|
61 |
% |
Percentage of revenue |
|
|
14 |
% |
|
|
15 |
% |
|
|
|
|
|
|
Sales and marketing expenses were $67.3 million for the nine months ended November 30, 2022, a $25.6 million, or 61%, increase compared to $41.8 million in the prior year. The increase was primarily driven by a $21.8 million increase due to the BluJay Acquisition in fiscal 2022 and Logistyx Acquisition in fiscal 2023 as well as additional expenses associated with our new corporate branding, digital and social marketing related to the launch of our new brand and website, company store and integrated marketing experience as well as hiring additional marketing resources. Additionally, there was an increase of $1.6 million for travel and entertainment and $1.1 million in share-based compensation.
General and Administrative
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
General and administrative |
|
$ |
66,774 |
|
|
$ |
49,989 |
|
|
$ |
16,785 |
|
|
|
34 |
% |
Percentage of revenue |
|
|
14 |
% |
|
|
18 |
% |
|
|
|
|
|
|
General and administrative expenses were $66.8 million for the nine months ended November 30, 2022, a $16.8 million, or 34%, increase compared to $50.0 million in the prior year. The increase was primarily attributable to $8.4 million related to the BluJay and Logistyx acquisitions. Additionally, there was an increase of $2.7 million for share-based compensation. During fiscal 2023, we incurred a $4.1 million impairment on our operating lease ROU assets and leasehold improvements due to vacating locations with the intent to sublease them.
Other Operating Expenses
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Acquisition and other related expenses |
|
$ |
14,313 |
|
|
$ |
50,168 |
|
|
$ |
(35,855 |
) |
|
|
-71 |
% |
Amortization of acquired intangible assets |
|
|
62,523 |
|
|
|
26,843 |
|
|
|
35,680 |
|
|
nm |
|
|
Total other operating expenses |
|
$ |
76,836 |
|
|
$ |
77,011 |
|
|
$ |
(175 |
) |
|
|
0 |
% |
Acquisition and other related expenses were $14.3 million for the nine months ended November 30, 2022, a $35.9 million, or 71%, decrease compared to $50.2 million for the nine months ended November 30, 2021. The decrease was mainly related to legal and consulting expenses associated with the Logistyx Acquisition in fiscal 2023 and BluJay Acquisition in fiscal 2022.
Amortization of acquired intangible assets was $62.5 million for the nine months ended November 30, 2022, a $35.7 million increase, compared to $26.8 million for the nine months ended November 30, 2021. The increase was a result of the BluJay Acquisition in September 2021 and Logistyx Acquisition in March 2022.
44
Goodwill Impairment
As indicated above, the market price of our Class A Common Stock and market capitalization declined significantly during the second quarter of fiscal 2023. This decline resulted in us determining that a triggering event occurred and an interim goodwill impairment assessment was performed. The result of the impairment assessment was the realization of a $514.8 million impairment charge. We did not have an impairment charge in the prior year.
Interest and Other Expense, Net
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Interest and other expense, net |
|
$ |
(54,732 |
) |
|
$ |
(22,004 |
) |
|
$ |
(32,728 |
) |
|
nm |
Interest and other expense, net was $54.7 million for the nine months ended November 30, 2022, a $32.7 million increase compared to $22.0 million in the prior year. The increase was primarily driven by the additional term loans used for the BluJay Acquisition in September 2021 and Logistyx Acquisition in March 2022, as well as higher interest rates in fiscal 2023.
Gain (Loss) from Change in Tax Receivable Agreement
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Gain (loss) from change in tax receivable |
|
$ |
9,089 |
|
|
$ |
(4,606 |
) |
|
$ |
13,695 |
|
|
nm |
During the nine months ended November 30, 2022, we recorded a gain of $9.1 million related to the change in the fair value of the tax receivable agreement liability, including interest, compared to a $4.6 million expense during the nine months ended November 30, 2021. Pursuant to ASC 805, Business Combination and relevant tax law, we calculated the fair value of the tax receivable agreement payments and identified the timing of the utilization of the tax attributes. The tax receivable agreement liability, related to exchanges as of the Business Combination date, is revalued at the end of each reporting period with the gain or loss as well as the associated interest reflected in gain (loss) from change in tax receivable agreement liability in the Unaudited Condensed Consolidated Statements of Operations in the period in which the event occurred.
In addition, under ASC 450, transactions with partnership unit holders after the acquisition date will result in additional Tax Receivable Agreement liabilities that are recorded on a gross undiscounted basis. During the nine months ended November 30, 2022 and 2021, the Tax Receivable Agreement liability under ASC 450 increased by $0.7 million and $13.2 million, respectively.
Gain (Loss) from Change in Fair Value of Warrant Liability
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Gain (loss) from change in fair value of |
|
$ |
36,764 |
|
|
$ |
(48,448 |
) |
|
$ |
85,212 |
|
|
nm |
We recorded a gain of $36.8 million during the nine months ended November 30, 2022, a $85.2 million increase compared to a loss of $48.4 million in the prior year for the change in fair value on the revaluation of our warrant liability associated with our public, private placement and forward purchase warrants. We are required to revalue the warrants at the end of each reporting period and reflect in the Unaudited Condensed Consolidated Statements of Operations a gain or loss from the change in fair value of the warrant liability in the period in which the change occurred.
Gain (Loss) from Change in Fair Value of Contingent Consideration
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Gain (loss) from change in fair value of |
|
$ |
17,760 |
|
|
$ |
(91,180 |
) |
|
$ |
108,940 |
|
|
nm |
45
We recorded a gain of $17.8 million during the nine months ended November 30, 2022, a $108.9 million increase compared to a loss of $91.2 million in the prior year for the change in fair value on the revaluation of our contingent consideration associated with our restricted B-2 common stock and Series 2 RCUs. We are required to revalue the contingent consideration at the end of each reporting period or upon conversion and reflect in the Unaudited Condensed Consolidated Statements of Operations a gain or loss from the change in fair value of the contingent consideration in the period in which the change occurred.
Provision for Income Taxes
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
Loss before income taxes |
|
$ |
(546,713 |
) |
|
$ |
(261,024 |
) |
|
$ |
(285,689 |
) |
|
nm |
Income tax benefit |
|
|
130,010 |
|
|
|
3,392 |
|
|
|
126,618 |
|
|
nm |
Loss before income taxes was $546.7 million for the nine months ended November 30, 2022, a $285.7 million increase compared to $261.0 million for the nine months ended November 30, 2021. This increase in the loss was primarily related to the $514.8 million impairment on goodwill taken in the second quarter of fiscal 2023. The remaining increase was related to $58.3 million of higher operating expenses, $32.7 million of higher interest expense and a $35.7 million increase in the amortization of the intangible assets when compared to the prior year. These expenses were partially offset by a $112.4 million higher gross profit due to the BluJay and Logistyx acquisitions along with a decrease in the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination of $47.1 million. Additionally, there was a $85.2 million gain on the change in the fair value adjustments for the warrant liability and a $108.9 million gain associated with the fair value adjustments for the contingent consideration liability related to the restricted Series B-2 common stock and Series 2 RCUs when compared to the prior year.
Income tax benefit was $130.0 million, or 23.8%, for the nine months ended November 30, 2022 compared to $3.4 million, or 1.3%, for the nine months ended November 30, 2021. The change in our effective tax rate between periods was primarily due to the reduction in our deferred tax liability as a result of the goodwill impairment, year-over-year changes in book losses in certain jurisdictions for which no benefit can be recognized, changes in the impact of book income and losses of affiliates on the carrying amount of our partnership investment, and changes in the mark-to-market gains and losses on certain contingent liabilities.
Non-GAAP Financial Measures
This document includes Non-GAAP revenue, Non-GAAP subscriptions revenue, Non-GAAP gross profit, Non-GAAP gross margin, EBITDA and Adjusted EBITDA, which are non-GAAP performance measures that we use to supplement our results presented in accordance with U.S. GAAP. We believe these non-GAAP measures are useful in evaluating our operating performance, as they are similar to measures reported by our public competitors and are regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. These non-GAAP measures are not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.
We calculate and define Non-GAAP revenue and Non-GAAP subscriptions revenue as revenue excluding the impact of the deferred revenue fair value adjustment related to the purchase price allocation in the Business Combination. We calculate and define Non-GAAP gross profit as gross profit excluding amortization of the deferred revenue fair value adjustment, depreciation and amortization, share-based compensation and certain other non-cash and non-recurring items. We define and calculate EBITDA as net income or losses excluding interest income or expense, income tax expense or benefit, depreciation and amortization and Adjusted EBITDA as further adjusted for the following items: amortization of the deferred revenue fair value adjustment, goodwill impairment charge, right-of-use assets charge, transaction-related costs, gain (loss) from change in the tax receivable agreement liability, (gain) loss from changes in the fair value of the warrant liability and contingent consideration, share-based compensation and certain other non-cash and non-recurring items as described in the reconciliation below. We also report Non-GAAP gross profit and Adjusted EBITDA as a percentage of Non-GAAP revenue as additional measures to evaluate financial performance.
46
We include these non-GAAP financial measures because they are used by management to evaluate our core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. These non-GAAP measures exclude certain expenses that are required in accordance with U.S. GAAP because they are non-recurring (for example, in the case of transaction-related costs, goodwill impairment charge, right-of-use assets charge and amortization of the deferred revenue fair value adjustment), non-cash (for example, in the case of depreciation, amortization, gain (loss) from change in the tax receivable agreement liability, (gain) loss from changes in the fair value of the warrant liability and contingent consideration, share-based compensation and amortization of the deferred revenue fair value adjustment) or are not related to our underlying business performance (for example, in the case of interest income and expense). There are limitations to non-GAAP financial measures because they exclude charges and credits that are required to be included in the U.S. GAAP financial presentation. The items excluded from U.S. GAAP financial measures such as net income or loss to arrive at non-GAAP financial measures are significant components for understanding and assessing our financial performance. As a result, non-GAAP financial measures should be considered together with, and not alternatives to, financial measures prepared in accordance with U.S. GAAP.
The table below presents our Non-GAAP revenue reconciled to our reported revenue, the closest U.S. GAAP measure, for the periods indicated:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Subscriptions revenue |
|
$ |
134,884 |
|
|
$ |
106,969 |
|
|
$ |
396,052 |
|
|
$ |
219,728 |
|
Business Combination adjustment (1) |
|
|
— |
|
|
|
10,394 |
|
|
|
— |
|
|
|
47,099 |
|
Non-GAAP subscriptions revenue |
|
|
134,884 |
|
|
|
117,363 |
|
|
|
396,052 |
|
|
|
266,827 |
|
Professional services and other revenue |
|
|
30,009 |
|
|
|
30,033 |
|
|
|
89,898 |
|
|
|
61,680 |
|
Non-GAAP revenue |
|
$ |
164,893 |
|
|
$ |
147,396 |
|
|
$ |
485,950 |
|
|
$ |
328,507 |
|
The table below presents our Non-GAAP gross profit reconciled to our reported gross profit, the closest U.S. GAAP measure, for the periods indicated:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reported gross profit |
|
$ |
84,143 |
|
|
$ |
64,216 |
|
|
$ |
243,268 |
|
|
$ |
130,912 |
|
Business Combination adjustment (1) |
|
|
— |
|
|
|
10,394 |
|
|
|
— |
|
|
|
47,099 |
|
Depreciation and amortization |
|
|
28,388 |
|
|
|
27,771 |
|
|
|
85,447 |
|
|
|
56,823 |
|
Non-recurring/non-operating costs (2) |
|
|
513 |
|
|
|
506 |
|
|
|
2,115 |
|
|
|
1,090 |
|
Share-based compensation (3) |
|
|
542 |
|
|
|
482 |
|
|
|
862 |
|
|
|
1,012 |
|
Non-GAAP gross profit |
|
$ |
113,586 |
|
|
$ |
103,369 |
|
|
$ |
331,692 |
|
|
$ |
236,936 |
|
Gross margin |
|
|
51.0 |
% |
|
|
46.9 |
% |
|
|
50.1 |
% |
|
|
46.5 |
% |
Non-GAAP gross margin |
|
|
68.9 |
% |
|
|
70.1 |
% |
|
|
68.3 |
% |
|
|
72.1 |
% |
47
The table below presents our Adjusted EBITDA reconciled to our net income (loss), the closest U.S. GAAP measure, for the periods indicated:
|
|
Three Months Ended November 30, |
|
|
Nine Months Ended November 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) |
|
$ |
5,503 |
|
|
$ |
(64,289 |
) |
|
$ |
(416,703 |
) |
|
$ |
(257,632 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
19,509 |
|
|
|
9,981 |
|
|
|
52,411 |
|
|
|
22,161 |
|
Income tax benefit |
|
|
(7,877 |
) |
|
|
(10,764 |
) |
|
|
(130,010 |
) |
|
|
(3,392 |
) |
Depreciation and amortization |
|
|
52,451 |
|
|
|
50,496 |
|
|
|
159,831 |
|
|
|
91,496 |
|
EBITDA |
|
|
69,586 |
|
|
|
(14,576 |
) |
|
|
(334,471 |
) |
|
|
(147,367 |
) |
EBITDA Margin |
|
|
42.2 |
% |
|
|
-10.6 |
% |
|
|
-68.8 |
% |
|
|
-52.4 |
% |
Business Combination adjustment (1) |
|
|
— |
|
|
|
10,394 |
|
|
|
— |
|
|
|
47,099 |
|
Goodwill impairment charge (2) |
|
|
— |
|
|
|
— |
|
|
|
514,816 |
|
|
|
— |
|
Right-of-use assets impairment charge (3) |
|
|
1,761 |
|
|
|
— |
|
|
|
4,137 |
|
|
|
— |
|
Acquisition-related adjustments (4) |
|
|
1,969 |
|
|
|
33,216 |
|
|
|
14,313 |
|
|
|
50,168 |
|
Gain (loss) from change in tax receivable |
|
|
(2,697 |
) |
|
|
1,470 |
|
|
|
(9,089 |
) |
|
|
4,606 |
|
(Gain) loss from change in fair value of warrant |
|
|
(16,150 |
) |
|
|
7,232 |
|
|
|
(36,764 |
) |
|
|
48,448 |
|
(Gain) loss from change in fair value of |
|
|
(6,300 |
) |
|
|
1,140 |
|
|
|
(17,760 |
) |
|
|
91,180 |
|
Non-recurring/non-operating costs (8) |
|
|
3,189 |
|
|
|
2,987 |
|
|
|
7,563 |
|
|
|
5,486 |
|
Share-based compensation (9) |
|
|
4,797 |
|
|
|
4,027 |
|
|
|
13,157 |
|
|
|
8,961 |
|
Adjusted EBITDA |
|
$ |
56,155 |
|
|
$ |
45,890 |
|
|
$ |
155,902 |
|
|
$ |
108,581 |
|
Adjusted EBITDA Margin |
|
|
34.1 |
% |
|
|
31.1 |
% |
|
|
32.1 |
% |
|
|
33.1 |
% |
48
Three Months Ended November 30, 2022 compared to Three Months Ended November 30, 2021
Non-GAAP Subscriptions Revenue
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Non-GAAP subscriptions revenue |
|
$ |
134,884 |
|
|
$ |
117,363 |
|
|
$ |
17,521 |
|
|
|
15 |
% |
Percentage of Non-GAAP revenue |
|
|
82 |
% |
|
|
80 |
% |
|
|
|
|
|
|
Non-GAAP subscriptions revenue was $134.9 million for the three months ended November 30, 2022, a $17.5 million, or 15%, increase compared to $117.4 million for the three months ended November 30, 2021. The increase in Non-GAAP subscriptions revenue relates to the Logistyx Acquisition and new organic subscription sales predominately driven by increases in products utilized across our client portfolio.
Non-GAAP Revenue
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Non-GAAP revenue |
|
$ |
164,893 |
|
|
$ |
147,396 |
|
|
$ |
17,497 |
|
|
|
12 |
% |
Non-GAAP revenue was $164.9 million for the three months ended November 30, 2022, a $17.5 million, or 12%, increase compared to $147.4 million for the three months ended November 30, 2021. The increase in Non-GAAP revenue was mainly due to an increase in our subscriptions revenue related to the Logistyx Acquisition and new organic sales driven by increases in products utilized across our current client portfolio.
Gross Profit
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Gross profit |
|
$ |
84,143 |
|
|
$ |
64,216 |
|
|
$ |
19,927 |
|
|
|
31 |
% |
Gross margin |
|
|
51.0 |
% |
|
|
46.9 |
% |
|
|
|
|
|
|
Gross profit was $84.1 million for the three months ended November 30, 2022, a $19.9 million, or 31%, increase compared to $64.2 million for three months ended November 30, 2021. The increase in gross profit was primarily due to the Logistyx Acquisition as well as the decrease in the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination of $10.4 million. Gross margin was 51% for the third quarter of fiscal 2023 compared to 47% for the third quarter of fiscal 2022.
Non-GAAP Gross Profit
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Non-GAAP gross profit |
|
$ |
113,586 |
|
|
$ |
103,369 |
|
|
$ |
10,217 |
|
|
|
10 |
% |
Non-GAAP gross margin |
|
|
68.9 |
% |
|
|
70.1 |
% |
|
|
|
|
|
|
Non-GAAP gross profit was $113.6 million for the three months ended November 30, 2022, a $10.2 million, or 10%, increase compared to $103.4 million for the three months ended November 30, 2021. The increase in adjusted gross profit was primarily due to the Logistyx Acquisition. The Non-GAAP gross margin decreased in the third quarter of fiscal 2023 to 69% compared to 70% in the third quarter of fiscal 2022 due to our investment in strategic system integrator partnership initiatives as well as increased hosting and labor costs.
EBITDA
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
EBITDA |
|
$ |
69,586 |
|
|
$ |
(14,576 |
) |
|
$ |
84,162 |
|
|
nm |
EBITDA margin |
|
|
42.2 |
% |
|
|
-10.6 |
% |
|
|
|
|
|
49
EBITDA was $69.6 million for the three months ended November 30, 2022, a $84.2 million increase compared to $14.6 million for three months ended November 30, 2021. EBITDA margin increased to 42% for the third quarter of fiscal 2023 compared to a negative 11% in the prior year. The increase in EBITDA and EBITDA margin was primarily related to higher revenues in fiscal year 2023, $7.4 million increase in gain associated with the fair value adjustment for the contingent consideration liability related to the restricted Series B-2 common stock and $23.4 million increase in gain on the change in fair value of the warrant liability in fiscal 2023 as compared to fiscal 2022. Additionally, there was a decrease of $10.4 million in the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination and $31.2 million of acquisition-related expenses related to the BluJay Acquisition when compared to fiscal 2022.
Adjusted EBITDA
|
|
Three Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Adjusted EBITDA |
|
$ |
56,155 |
|
|
$ |
45,890 |
|
|
$ |
10,265 |
|
|
|
22 |
% |
Adjusted EBITDA margin |
|
|
34.1 |
% |
|
|
31.1 |
% |
|
|
|
|
|
|
Adjusted EBITDA was $56.2 million for the three months ended November 30, 2022, a $10.3 million increase compared to $45.9 million for the three months ended November 30, 2021. Adjusted EBITDA margin was 34% for the third quarter of fiscal 2023 compared to 31% for the third quarter of fiscal 2022 primarily due to higher revenues combined with reduced operating expenses as a percentage of revenue yielding increased operating leverage.
Nine Months Ended November 30, 2022 compared to Nine Months Ended November 30, 2021
Non-GAAP Subscriptions Revenue
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Non-GAAP subscriptions revenue |
|
$ |
396,052 |
|
|
$ |
266,827 |
|
|
$ |
129,225 |
|
|
|
48 |
% |
Percentage of Non-GAAP revenue |
|
|
82 |
% |
|
|
81 |
% |
|
|
|
|
|
|
Non-GAAP subscriptions revenue was $396.1 million for the nine months ended November 30, 2022, a $129.2 million, or 48%, increase compared to $266.8 million for the nine months ended November 30, 2021. The increase in Non-GAAP subscriptions revenue relates to the BluJay and Logistyx acquisitions and new organic subscription sales predominately driven by increases in products utilized across our client portfolio.
Non-GAAP Revenue
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Non-GAAP revenue |
|
$ |
485,950 |
|
|
$ |
328,507 |
|
|
$ |
157,443 |
|
|
|
48 |
% |
Non-GAAP revenue was $486.0 million for the nine months ended November 30, 2022, a $157.4 million, or 48%, increase compared to $328.5 million for the nine months ended November 30, 2021. The increase in Non-GAAP revenue was mainly due to the $129.2 million increase in our subscriptions revenue related to the BluJay and Logistyx acquisitions and new organic sales driven by increases in products utilized across our current client portfolio. Additionally, $28.2 million of the increase was due to an increase in our professional services revenue primarily related to the BluJay and Logistyx acquisitions.
Gross Profit
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Gross profit |
|
$ |
243,268 |
|
|
$ |
130,912 |
|
|
$ |
112,356 |
|
|
|
86 |
% |
Gross margin |
|
|
50.1 |
% |
|
|
46.5 |
% |
|
|
|
|
|
|
Gross profit was $243.3 million for the nine months ended November 30, 2022, a $112.4 million, or 86%, increase compared to $130.9 million for nine months ended November 30, 2021. The increase in gross profit was primarily due to the BluJay and Logistyx acquisitions as well as the decrease in the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination of $47.1 million. Gross margin was 50% for the first nine months of fiscal 2023 compared to 47% for the first nine months of fiscal 2022.
50
Non-GAAP Gross Profit
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Non-GAAP gross profit |
|
$ |
331,692 |
|
|
$ |
236,936 |
|
|
$ |
94,756 |
|
|
|
40 |
% |
Non-GAAP gross margin |
|
|
68.3 |
% |
|
|
72.1 |
% |
|
|
|
|
|
|
Non-GAAP gross profit was $331.7 million for the nine months ended November 30, 2022, a $94.8 million, or 40%, increase compared to $236.9 million for the nine months ended November 30, 2021. The increase in adjusted gross profit was primarily due to the BluJay and Logistyx acquisitions. The Non-GAAP gross margin percentage decreased in the first nine months of fiscal 2023 to 68% compared to 72% in the first nine months of fiscal 2022 due to our investment in strategic system integrator partnership initiatives as well as increased hosting and labor costs.
EBITDA
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
EBITDA |
|
$ |
(334,471 |
) |
|
$ |
(147,367 |
) |
|
$ |
(187,104 |
) |
|
nm |
EBITDA margin |
|
|
-68.8 |
% |
|
|
-52.4 |
% |
|
|
|
|
|
EBITDA was a loss of $334.5 million for the nine months ended November 30, 2022, a $187.1 million increase compared to a loss of $147.4 million for nine months ended November 30, 2021. EBITDA margins were a negative 69% for the first nine months of fiscal 2023 compared to a negative 52% in the prior year. The decrease in EBITDA and EBITDA margin was primarily related to the $514.8 million goodwill impairment taken in the second quarter of fiscal 2023. This expense was partially offset by a decrease of $47.1 million in the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination. Additionally, there was a $35.8 million decrease in acquisition related expenses, higher revenues in fiscal 2023, a $85.2 million higher gain for the fair value adjustment for the warrant liability and a $108.9 million higher gain associated with the fair value adjustment for the contingent consideration liability related to the restricted Series B-2 common stock when compared to the first nine months of fiscal 2022.
Adjusted EBITDA
|
|
Nine Months Ended November 30, |
|
|
|
|
|
|
|
|||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Adjusted EBITDA |
|
$ |
155,902 |
|
|
$ |
108,581 |
|
|
$ |
47,321 |
|
|
|
44 |
% |
Adjusted EBITDA margin |
|
|
32.1 |
% |
|
|
33.1 |
% |
|
|
|
|
|
|
Adjusted EBITDA was $155.9 million for the nine months ended November 30, 2022, a $47.3 million, or 44%, increase compared to $108.6 million for the nine months ended November 30, 2021. Adjusted EBITDA margin was 32% for the first nine months of fiscal 2023 compared to 33% for the first nine months of fiscal 2022 primarily due to a lower gross margin driven by our investment in strategic system integrator partnership initiatives as well as increased hosting and labor costs.
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital, capital expenditure needs, contractual obligations and other commitments, with cash flows from operations and other sources of funding. Current working capital needs relate mainly to employee compensation and benefits, as well as interest and debt. Our ability to expand and grow our business will depend on many factors, including working capital needs and the evolution of our operating cash flows.
We had $85.7 million in cash and cash equivalents and $145.0 million of unused borrowing capacity under our 2021 Revolving Credit Facility as of November 30, 2022. See Note 13, Notes Payable to the Notes to the Unaudited Condensed Consolidated Financial Statements. We believe our existing cash and cash equivalents, cash provided by operating activities and, if necessary, the borrowing capacity under our 2021 Revolving Credit Facility will be sufficient to meet our working capital, debt repayment, capital expenditure requirements and share repurchases for at least the next twelve months.
In the future, we may enter into arrangements to acquire or invest in complementary businesses. To facilitate these acquisitions or investments, we may seek additional equity or debt financing.
51
Share Repurchase Program
On January 20, 2022, our board of directors approved the 2022 Share Repurchase Program. Share repurchases may be made from time to time in the open market, in privately negotiated transactions, pursuant to other Rule 10b5-1 trading plans or other available means. The 2022 Share Repurchase Program is subject to market conditions and other factors and does not obligate us to repurchase any dollar amount or number of Class A Common Stock and the program may be extended, modified, suspended or discontinued at any time, without prior notice. We plan to fund this program with cash on hand.
No shares of Class A Common Stock have been repurchased to date.
Debt
2021 Term Loan and Revolving Credit Facility
In February 2021, E2open, LLC, our subsidiary, entered into the Credit Agreement which provided for the 2021 Term Loan in the amount of $525.0 million and the 2021 Revolving Credit Facility for $75.0 million. In September 2021, the Credit Agreement was amended to include a $380.0 million incremental term loan, an increase in the letter of credit sublimit from $15.0 million to $30.0 million and an increase in the 2021 Revolving Credit Facility from $75.0 million to $155.0 million. On April 6, 2022, the Credit Agreement was amended to include a $190.0 million incremental term loan.
The 2021 Revolving Credit Facility will mature on February 4, 2026. E2open, LLC can request increases in the revolving commitments and additional term loan facilities, in minimum amounts of $2.0 million for each facility. Principal payments are due on the Credit Agreement the last day of February, May, August and November commencing August 2021. The Credit Agreement was payable in quarterly installments of $1.3 million beginning in August 2021; however, the payments were increased to $2.3 million with the addition of the incremental term loan beginning in November 2021. The payment increased to $2.7 million with the addition of the $190.0 million incremental term loan beginning in May 2022. The Credit Agreement is payable in full on February 4, 2028.
The 2021 Term Loan has a variable interest rate which was 6.64% and 4.00% as of November 30, 2022 and February 28, 2022, respectively. As of November 30, 2022 and February 28, 2022, the 2021 Term Loan had a principal balance outstanding of $1,080.9 million and $899.2 million, respectively. There were $10.0 million outstanding borrowings at an interest rate of 6.77%, no letters of credit and $145.0 million available borrowing capacity under the 2021 Revolving Credit Facility as of November 30, 2022. These borrowings were used for general operating activities. There were $80.0 million of borrowings outstanding at an interest rate of 5.25%, no outstanding letters of credit and $75.0 million available borrowing capacity under the 2021 Revolving Credit Facility as of February 28, 2022.
On January 9, 2023, we repaid the outstanding $10.0 million balance on our 2021 Revolving Credit Facility. After this repayment, our available borrowing capacity under the 2021 Revolving Credit Facility is $155.0 million.
The average interest rate on our 2021 Term Loan was impacted by changes in market interest rates, which was attributed to the Federal Open Market Committee (FOMC) of the Federal Reserve repeatedly raising their target benchmark interest rate in the first nine months of fiscal 2023, resulting in subsequent prime rate increases of 375 basis points between March and November 2022. Based on our current outstanding 2021 Term Loan, this increase would result in an additional $40.5 million of interest expense per year.
Cash Flows
The following table presents net cash from operating, investing and financing activities:
|
|
Nine Months Ended November 30, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
43,151 |
|
|
$ |
28,182 |
|
Net cash used in investing activities |
|
|
(222,716 |
) |
|
|
(798,859 |
) |
Net cash provided by financing activities |
|
|
103,351 |
|
|
|
632,987 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
478 |
|
|
|
1,657 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
(75,736 |
) |
|
|
(136,033 |
) |
Cash, cash equivalents and restricted cash at beginning of period |
|
|
174,554 |
|
|
|
207,542 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
98,818 |
|
|
$ |
71,509 |
|
52
Nine Months Ended November 30, 2022 compared to Nine Months Ended November 30, 2021
As of November 30, 2022, our consolidated cash, cash equivalents and restricted cash was $98.8 million, a $75.7 million decrease from our balance of $174.6 million as of February 28, 2022.
Net cash provided by operating activities for the nine months ended November 30, 2022 was $43.2 million compared to $28.2 million for the nine months ended November 30, 2021. The $15.0 million increase in cash was primarily driven by the additional gross profits contributed by BluJay and Logistyx as well as organic growth partially offset by the use of $86.3 million of cash for working capital items such as the decrease in cash provided by accounts receivable, the increase in cash for accounts payable and accrued liabilities and the recognition of deferred revenue in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022.
Net cash used in investing activities was $222.7 million and $798.9 million for the nine months ended November 30, 2022 and 2021, respectively. During fiscal year 2023, net cash of $179.2 million was used for the Logistyx Acquisition while $774.2 million of cash was used for the BluJay Acquisition during fiscal 2022. Additionally, we made a $3.0 million minority investment in a private firm during the first quarter of fiscal 2023. During the nine months of fiscal 2023 and 2022, $40.5 million and $24.6 million were used for the acquisition of software and property related to our data centers, respectively.
Net cash provided by financing activities for the nine months ended November 30, 2022 was $103.4 million compared to $633.0 million for nine months ended November 30, 2021. The decrease in cash provided by financing activities was mainly due to the following:
Tax Receivable Agreement
Concurrently with the completion of the Business Combination, we entered into the Tax Receivable Agreement with certain selling equity holders of E2open Holdings that requires us to pay 85% of the tax savings that are realized because of increases in the tax basis of E2open Holdings' assets. This increase is either from the sale of Common Units or exchange of Common Units for shares of Class A Common Stock and cash, as well as tax benefits attributable to payments under the Tax Receivable Agreement, We will retain the benefit of the remaining 15% of these cash savings. The term of the Tax Receivable Agreement will continue until all such tax benefits have been utilized or expired unless we exercise our right to terminate the Tax Receivable Agreement for an amount representing the present value of anticipated future tax benefits under the Tax Receivable Agreement or certain other acceleration events occur.
Amounts payable under the Tax Receivable Agreement will be contingent upon, among other things, our generation of taxable income over the term of the Tax Receivable Agreement. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits subject to the Tax Receivable Agreement, we would not be required to make the related payments under the Tax Receivable Agreement. Although the amount of any payments required to be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year.
53
The liability related to the Tax Receivable Agreement was $58.2 million and $66.6 million as of November 30, 2022 and February 28, 2022, respectively, assuming (1) a corporate tax rate of 24.2% as of November 30, 2022 and 24.1% as of February 28, 2022, (2) no dispositions of corporate subsidiaries, (3) no material changes in tax law and (4) we do not elect an early termination of the Tax Receivable Agreement. However, due to the uncertainty of various factors, including: (a) the timing and value of future exchanges, (b) the amount and timing of our future taxable income, (c) changes in our tax rate, (d) no future dispositions of any corporate stock, (e) changes in the tax law and (f) changes in the discount rate, the likely tax savings we will realize and the resulting amounts we are likely to pay to the selling equity holders of E2open Holdings pursuant to the Tax Receivable Agreement are uncertain. Additionally, interest will accrue on the portion of the Tax Receivable Agreement liability recorded under ASC 805 at a rate of LIBOR plus 100 basis points. The portion of the Tax Receivable Agreement liability under ASC 450 is recorded on a gross undiscounted basis.
The liability recorded on the balance sheet does not include an estimate of the amount of payments to be made if certain sellers exchanged their remaining interests in E2open Holdings for our common stock, as this amount is not readily determinable and is dependent on several future variables, including timing of future exchanges, stock price at date of exchange, tax attributes of the individual parties to the exchange and changes in future applicable federal and state tax rates.
In addition, if we exercise our right to terminate the Tax Receivable Agreement or certain other acceleration events occur, we will be required to make immediate cash payments. Such cash payments will be equal to the present value of the assumed future realized tax benefits based on a set of assumptions and using an agreed upon discount rate, as defined in the Tax Receivable Agreement. The early termination payment may be made significantly in advance of the actual realization, if any, of those future tax benefits. Such payments will be calculated based on certain assumptions, including that we have sufficient taxable income to utilize the full amount of any tax benefits subject to the Tax Receivable Agreement over the period specified therein. The payments that we would be required to make will generally reduce the amount of the overall cash flow that might have otherwise been available to us, but we expect the cash tax savings we will realize from the utilization of the related tax benefits will exceed the amount of any required payments.
We are entitled to receive quarterly tax distributions from E2open Holdings, subject to limitations imposed by applicable law and contractual restrictions. The cash received from such tax distributions will first be used to satisfy any tax liability and then make any payments required under the Tax Receivable Agreement. We expect that such tax distributions will be sufficient to fund both our tax liability and the required payments under the Tax Receivable Agreement.
Contingent Consideration
The contingent consideration liability was $27.8 million and $45.6 million as of November 30, 2022 and February 28, 2022, respectively. The fair value remeasurements resulted in a gain of $6.3 million and loss of $1.1 million for the three months ended November 30, 2022 and 2021, respectively. The fair value remeasurements resulted in a gain of $17.8 million and a loss of $91.2 million for the nine months ended November 30, 2022 and 2021, respectively. The contingent liability represents the Series B-1 common stock, Series B-2 common stock, Series 1 RCUs and Series 2 RCUs.
As of June 8, 2021, the Series B-1 common stock and Series 1 RCUs were no longer reflected as a contingent consideration liability as the 5-day VWAP of our Class A Common Stock exceeded $13.50 per share. This triggering event resulted in the 8,120,273 Series B-1 common stock converting into Class A Common Stock and 4,379,557 Series 1 RCUs becoming 4,379,557 Common Units of E2open Holdings along with entitling the holders of the newly vested common units to 4,379,557 shares of Class V Common Stock.
Logistyx Acquisition
On March 2, 2022, E2open, LLC acquired Logistyx for a purchase price of $185 million, and an estimated fair value of $183.4 million, including $90 million paid in cash at closing. An additional $95 million was paid in two installments on May 31, 2022 and September 1, 2022. We had the option to finance the remaining payments, at our discretion, through cash or a combination of cash and Class A Common Stock. The May 31, 2022 payment of $37.4 million was paid with cash. On September 1, 2022, E2open, LLC made a cash payment of $54.0 million to Logistyx as the final installment payment for the Logistyx Acquisition which reflected a working capital adjustment of $3.6 million. The Logistyx sellers disputed the working capital adjustment pursuant to the terms of the Membership Interest Purchase Agreement. During October 2022, the parties agreed to a working capital adjustment of $2.6 million. The additional payment for working capital was made to Logistyx on December 5, 2022.
Leases
We account for leases in accordance with ASC 842, Leases which requires lessees to recognize lease liabilities and ROU assets on the balance sheet for contracts that provide lessees with the right to control the use of identified assets for periods of greater than 12 months.
54
Our non-cancelable operating leases for our office spaces and vehicles have various expiration dates through June 2030. Under these leases, our undiscounted future cash flows utilized in the calculation of the lease liabilities as of November 30, 2022 were: $2.6 million for December 1, 2022 through February 28, 2023, $8.9 million for fiscal 2024, $7.0 million for fiscal 2025, $4.4 million for fiscal 2026, $3.0 million for fiscal 2027 and $2.5 million thereafter. These numbers include interest of $2.7 million.
Our non-cancelable financing lease arrangements relate to software and computer equipment and have various expiration dates through October 2023. We have the right to purchase the software and computer equipment anytime during the lease or upon lease completion. Under these leases, our undiscounted future cash flows utilized in the calculation of the lease liabilities as of November 30, 2022 were: $0.1 million for December 1, 2022 through February 28, 2023 and $2.0 million for fiscal 2024. These numbers include interest of $0.1 million.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. Preparation of the financial statements requires management to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our condensed consolidated financial statements. Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies to the Notes to the Consolidated Financial Statements in our 2022 Form 10-K.
There have been no changes to our critical accounting policies and estimates during the three and nine months ended November 30, 2022 from those previously disclosed in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report.
Recent Accounting Pronouncements
Recently issued and adopted accounting pronouncements are described in Note 2, Accounting Standards to the Notes to the Unaudited Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the market risks during the three and nine months ended November 30, 2022 from those previously disclosed in Part II, Item 7A., Quantitative and Qualitative Disclosures About Market Risk of our 2022 Form 10-K.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We have disclosure controls and procedures in place to ensure that information required to be disclosed in our reports filed or submitted under the Securities and Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. These controls and procedures are accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by the Quarterly Report. In designing and evaluating these disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.
55
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal controls over financial reporting during the quarter ended November 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We review our disclosure controls and procedures, which may include internal controls over financial reporting, on an ongoing basis. From time to time, management makes changes to enhance the effectiveness of these controls and ensure that they continue to meet the needs of our business over time.
PART II—Other Information
Item 1. Legal Proceedings.
From time to time, we are subject to contingencies that arise in the ordinary course of business. We record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We do not currently believe the resolution of any such contingencies will have a material adverse effect upon our Unaudited Condensed Consolidated Balance Sheets, Statements of Operations or Statements of Cash Flows.
Item 1A. Risk Factors.
There have been no material changes in our risk factors during the three and nine months ended November 30, 2022 from those previously disclosed in Part I, Item 1A., Risk Factors of our 2022 Form 10-K. You should carefully consider the risk factors discussed in our 2022 Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 20, 2022, the board of directors approved a $100.0 million share repurchase program (2022 Share Repurchase Program). Stock repurchases may be made from time to time in the open market, in privately negotiated transactions, pursuant to Rule 10b5-1 trading plans or other available means. The 2022 Share Repurchase Program is subject to market conditions and other factors and does not obligate us to repurchase any dollar amount or number of our Class A Common Stock and the program may be extended, modified, suspended or discontinued at any time, without prior notice.
No shares of Class A Common Stock have been repurchased to date.
Item 6. Exhibits.
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
Exhibit Number |
|
Description |
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
31.1* |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* |
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2* |
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
|
Inline XBRL Instance Document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File |
56
* Filed herewith.
Schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Registration S-K. The Registrant hereby agrees to furnish a copy of any omitted schedules to the Commission upon request
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
E2open Parent Holdings, Inc. |
|
|
|
|
|
Date: January 9, 2023 |
|
By: |
/s/ Michael A. Farlekas |
|
|
|
Michael A. Farlekas |
|
|
|
Chief Executive Officer |
|
|
|
|
Date: January 9, 2023 |
|
By: |
/s/ Marje Armstrong |
|
|
|
Marje Armstrong |
|
|
|
Chief Financial Officer |
57