Coveo Solutions Inc T.CVO

TD

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Coveo Solutions Inc.

(CVO-T) C$10.28

Q1/F24 Results: Solid Quarter/Guide; GenAI Opp Becoming Clearer

Event

Yesterday after market close, Coveo reported its Q1/F24 results.

Impact: POSITIVE

In-line revenue; Adjusted EBITDA beats again. Coveo reported Q1/F24 revenue of $30.5mm, up 15% y/y (16% in cc) and 5% q/q, above the high end of guidance. SaaS subscription revenue grew 19% y/y (20% in cc) and 5% q/q to $28.5mm, driven by double-digit growth across all LoBs. Current Remaining Performance Obligations were up 12% y/y, but down 1% q/q, due to the timing of renewals, a macro-driven decline in contract duration, and expected Qubit-related churn. Coveo handily beat on Adjusted EBITDA of ($1.8mm) (TD: ($3.7mm)/consensus:($2.9mm)), a >70% y/ y improvement, driven primarily by ongoing cost-optimization work/efficiency gains.

F2024 Adjusted Operating Loss guidance improved. F2024 revenue guidance has been maintained, as the ongoing challenging macroeconomic environment is expected to offset a projected improvement in bookings momentum as the year progresses, driven by the launch of its Coveo Relevance Generative Answering (CRGA) solution and the ramp of its SAP partnership. The continued sharp profitability gains over the last year, has led to much better-than-expected Q2/F24 and materially improved F2024 Adjusted Operating Loss guidance. Ending cash was >$200mm (>$175mm post-SIB), with Coveo expecting <$10mm in cash burn this year and <$15mm in cash needed to get to positive operating cash flow in F2025.

Quantifying the significant GenAI opportunity. There was (very) strong demand to join its beta program, with Coveo selecting 20 customers as design partners (e.g., VMware, Zoom, Informatica) and 25 customers in its advisory group. Early adopter pricing for CRGA is at 40% of the customer's applicable ACV (i.e., it includes only LoBs where CRGA is being offered, specifically Service, Workplace, and Website) with a $150k annual SaaS subscription minimum. Based on our C2023 exit ACV forecast of ~$120mm, ~75% of ACV from Service/Workplace/Website, and 40% early adopter pricing (normal pricing is expected to be materially higher), we estimate an initial CRGA opportunity of ~$36mm in ACV (~30% upside to total ACV), based only on existing customer spend.

TD Investment Conclusion

We are maintaining our C$13.00 target price, based on 6.0x our C2024 revenue forecast.