E2OPEN PARENT HOLDINGS, INC.
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
OnMarch 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 onMay 31, 2022 andSeptember 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. TheMay 31, 2022 payment of$37.4 million was paid in cash. OnSeptember 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. DuringOctober 2022 , the parties agreed to a working capital adjustment of$2.6 million with the additional payment for working capital made to Logistyx onDecember 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 ofE2open 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 ofE2open'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
agreement liability 2,697 (1,470 ) 9,089 (4,606 )
Gain (loss) from change in fair
value of warrant
liability 16,150 (7,232 ) 36,764 (48,448 )
Gain (loss) from change in fair
value of contingent
consideration 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
noncontrolling interest 698 (5,072 ) (41,464 ) (35,640 )
Net income (loss) attributable to
E2open Parent
Holdings, Inc. $ 4,805 $ (59,217 ) $ (375,239 ) $ (221,992 )
Net income (loss) attributable to
E2open Parent
Holdings, Inc. Class A common
stockholders per
share:
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
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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
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
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
agreement liability $ 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
liability $ 16,150 $ (7,232 ) $ 23,382 nm
41-------------------------------------------------------------------------------- We recorded a gain of$16.2 million during the three months endedNovember 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
contingent consideration $ 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 endedNovember 30, 2022 , a$176.3 million , or 80%, increase compared to subscriptions revenue of$219.7 million for the nine months endedNovember 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 endedNovember 30, 2022 , a$28.2 million , or 46%, increase compared to$61.7 million for the nine months endedNovember 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 $48.9
million for the nine months ended November 30, 2021 , driven by the BluJay
Acquisition in September 2021 and Logistyx Acquisition in March 2022 .
Our subscriptions gross margin was 55% for the first nine months of fiscal 2023
as compared to 49% for the first nine months of fiscal 2022 primarily due to the
amortization of the fair value adjustment to deferred revenue related to the
purchase price allocation in the Business Combination offset by the additional
revenue from the BluJay and Logistyx acquisitions in fiscal 2023. With the early
adoption of ASU 2021-08, the BluJay and Logistyx deferred revenue was recorded
under ASC 606 and not at fair value at the acquisition date; therefore,
amortization of the fair value adjustment to deferred revenue similar to the
Business Combination adjustment did not occur for the BluJay or Logistyx
acquisitions.
43
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Our professional services gross margin was down to 29% for the first nine months
of fiscal 2023 compared to 37% for the first nine months of fiscal 2022
primarily due to our investment in strategic system integrator partnership
initiatives.
Research and Development
Nine Months Ended November 30,
($ 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
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
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
agreement liability $ 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
warrant liability $ 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
contingent consideration $ 17,760 $ (91,180 ) $ 108,940 nm
45-------------------------------------------------------------------------------- We recorded a gain of$17.8 million during the nine months endedNovember 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 withU.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 anyU.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 withU.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 theU.S. GAAP financial presentation. The items excluded fromU.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 withU.S. GAAP.
The table below presents our Non-GAAP revenue reconciled to our reported
revenue, the closest
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
(1)
Includes the amortization of the fair value adjustment to deferred revenue
related to the purchase price allocation in the Business Combination. As of
February 28, 2022 , the remaining balance of the deferred revenue purchase price
adjustment was $0.5 million which results in an immaterial quarterly amortized
amount reported in the Unaudited Condensed Consolidated Statements of
Operations; therefore, an amount will not be presented for fiscal 2023.
The table below presents our Non-GAAP gross profit reconciled to our reported
gross profit, the closest
Three Months Ended November 30, Nine Months Ended November 30,
($ 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 %
(1)
Includes the fair value adjustment to deferred revenue related to the purchase
price allocation in the Business Combination. As of February 28, 2022 , the
remaining balance of the deferred revenue purchase price adjustment was $0.5
million which results in an immaterial quarterly amortized amount reported in
the Unaudited Condensed Consolidated Statements of Operations; therefore, an
amount will not be presented for fiscal 2023.
(2)
Primarily includes other non-recurring expenses such as systems integrations and consulting and advisory fees.
(3)
Reflects non-cash, long-term share-based compensation expense, primarily related to senior management.
47
--------------------------------------------------------------------------------
The table below presents our Adjusted EBITDA reconciled to our net income
(loss), the closest
Three Months Ended November 30, Nine Months Ended November 30,
($ 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
agreement liability (5) (2,697 ) 1,470 (9,089 ) 4,606
(Gain) loss from change in fair
value of warrant
liability (6) (16,150 ) 7,232 (36,764 ) 48,448
(Gain) loss from change in fair
value of
contingent consideration (7) (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 %
(1)
Includes the fair value adjustment to deferred revenue related to the purchase
price allocation in the Business Combination. As of February 28, 2022 , the
remaining balance of the deferred revenue purchase price adjustment was $0.5
million which results in an immaterial quarterly amortized amount reported in
the Unaudited Condensed Consolidated Statements of Operations; therefore, an
amount will not be presented for fiscal 2023.
(2)
Represents the goodwill impairment taken in the second quarter of fiscal 2023.
(3)
Represents the impairment on our operating lease ROU assets and leasehold improvements due to vacating certain facilities.
(4)
Primarily includes advisory, consulting, accounting and legal expenses and severance incurred in connection with mergers and acquisitions activities including costs related to the Business Combination, BluJay Acquisition and Logistyx Acquisition.
(5)
Represents the fair value adjustment at each balance sheet date for the Tax Receivable Agreement along with the associated interest.
(6)
Represents the fair value adjustment at each balance sheet date of the warrant liability related to the public, private placement and forward purchase warrants.
(7)
Represents the fair value adjustment at each balance sheet date of the contingent consideration liability related to the restricted Series B-1 and B-2 common stock, Sponsor Side Letter and Series 1 and 2 RCUs. The Series B-1 common stock, Sponsor Side Letter and Series 1 RCUs were automatically converted into our Class A Common Stock on a one-to-one basis as ofJune 8, 2021 .
(8)
Primarily includes non-recurring expenses such as systems integrations, legal entity rationalization and consulting and advisory fees. In addition, the fiscal 2023 includes$0.8 million for executive severance.
(9)
Reflects non-cash, long-term share-based compensation expense, primarily related to senior management. For the three months endedNovember 30, 2022 and 2021, share-based compensation included less than$0.1 million expense attributable to certain unit-based awards in connection with theAmber Road, Inc. acquisition in 2019. For the nine months endedNovember 30, 2022 and 2021, share-based compensation included less than$0.1 million and$0.4 million expense, respectively, attributable to certain unit-based awards in connection with theAmber Road, Inc. acquisition 48 --------------------------------------------------------------------------------
Three Months Ended
Non-GAAP Subscriptions Revenue
Three Months Ended November 30,
($ in thousands) 2022 2021 $ Change % Change
Non-GAAP subscriptions revenue
$ 17,521 15 % Percentage of Non-GAAP revenue 82 % 80 % Non-GAAP subscriptions revenue was$134.9 million for the three months endedNovember 30, 2022 , a$17.5 million , or 15%, increase compared to$117.4 million for the three months endedNovember 30, 2021 . The increase in Non-GAAP subscriptions revenue relates to the Logistyx Acquisition and new organic subscription sales predominately driven by increases in products utilized across our client portfolio. Non-GAAP Revenue Three Months Ended November 30, ($ 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 endedNovember 30, 2022 , a$17.5 million , or 12%, increase compared to$147.4 million for the three months endedNovember 30, 2021 . The increase in Non-GAAP revenue was mainly due to an increase in our subscriptions revenue related to the Logistyx Acquisition and new organic sales driven by increases in products utilized across our current client portfolio. Gross Profit Three Months Ended November 30, ($ 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 endedNovember 30, 2022 , a$19.9 million , or 31%, increase compared to$64.2 million for three months endedNovember 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 endedNovember 30, 2022 , a$10.2 million , or 10%, increase compared to$103.4 million for the three months endedNovember 30, 2021 . The increase in adjusted gross profit was primarily due to the Logistyx Acquisition. The Non-GAAP gross margin decreased in the third quarter of fiscal 2023 to 69% compared to 70% in the third quarter of fiscal 2022 due to our investment in strategic system integrator partnership initiatives as well as increased hosting and labor costs. EBITDA Three Months Ended November 30, ($ 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 endedNovember 30, 2022 , a$84.2 million increase compared to$14.6 million for three months endedNovember 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 endedNovember 30, 2022 , a$10.3 million increase compared to$45.9 million for the three months endedNovember 30, 2021 . Adjusted EBITDA margin was 34% for the third quarter of fiscal 2023 compared to 31% for the third quarter of fiscal 2022 primarily due to higher revenues combined with reduced operating expenses as a percentage of revenue yielding increased operating leverage.
Nine Months Ended
Non-GAAP Subscriptions Revenue
Nine Months Ended November 30,
($ in thousands) 2022 2021
$ Change % Change
Non-GAAP subscriptions revenue
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 endedNovember 30, 2022 , a$187.1 million increase compared to a loss of$147.4 million for nine months endedNovember 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 endedNovember 30, 2022 , a$47.3 million , or 44%, increase compared to$108.6 million for the nine months endedNovember 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 ofNovember 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
OnJanuary 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
InFebruary 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 . InSeptember 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 . OnApril 6, 2022 , the Credit Agreement was amended to include a$190.0 million incremental term loan. The 2021 Revolving Credit Facility will mature onFebruary 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 commencingAugust 2021 . The Credit Agreement was payable in quarterly installments of$1.3 million beginning inAugust 2021 ; however, the payments were increased to$2.3 million with the addition of the incremental term loan beginning inNovember 2021 . The payment increased to$2.7 million with the addition of the$190.0 million incremental term loan beginning inMay 2022 . The Credit Agreement is payable in full onFebruary 4, 2028 . The 2021 Term Loan has a variable interest rate which was 6.64% and 4.00% as ofNovember 30, 2022 andFebruary 28, 2022 , respectively. As ofNovember 30, 2022 andFebruary 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 ofNovember 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 ofFebruary 28, 2022 .
On
The average interest rate on our 2021 Term Loan was impacted by changes in market interest rates, which was attributed to theFederal Open Market Committee (FOMC) of theFederal 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 andNovember 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
As of
Net cash provided by operating activities for the nine months endedNovember 30, 2022 was$43.2 million compared to$28.2 million for the nine months endedNovember 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 endedNovember 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 endedNovember 30, 2022 was$103.4 million compared to$633.0 million for nine months endedNovember 30, 2021 . The decrease in cash provided by financing activities was mainly due to the following:
•
We received$300.0 million in PIPE investment proceeds and obtained additional borrowings of$380.0 million for the BluJay Acquisition under the 2021 Revolving Credit Facility in fiscal 2022 compared to the$190.0 million incremental term loan for the Logistyx Acquisition in fiscal 2023;
•
During fiscal 2023 we borrowed an additional
•
We paid an additional
•
During fiscal 2023, we paid
•
We paid an additional
•
During fiscal 2022, we paid
•
We paid
Tax Receivable Agreement
Concurrently with the completion of the Business Combination, we entered into the Tax Receivable Agreement with certain selling equity holders ofE2open Holdings that requires us to pay 85% of the tax savings that are realized because of increases in the tax basis ofE2open 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 ofNovember 30, 2022 andFebruary 28, 2022 , respectively, assuming (1) a corporate tax rate of 24.2% as ofNovember 30, 2022 and 24.1% as ofFebruary 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 ofE2open 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 inE2open 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 fromE2open 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 ofNovember 30, 2022 andFebruary 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 endedNovember 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 endedNovember 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 ofJune 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 ofE2open Holdings along with entitling the holders of the newly vested common units to 4,379,557 shares of Class V Common Stock. Logistyx Acquisition OnMarch 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 onMay 31, 2022 andSeptember 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. TheMay 31, 2022 payment of$37.4 million was paid with cash. OnSeptember 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. DuringOctober 2022 , the parties agreed to a working capital adjustment of$2.6 million . The additional payment for working capital was made to Logistyx onDecember 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.
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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 withU.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 endedNovember 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.
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