Coveo Solutions Inc.
(CVO-T) C$9.20
Q3/F23 Results: Record Win Helps Drives Another Beat Event
Yesterday after market close, Coveo reported its Q3/F23 results and provided Q4/ F23 and updated F2023 guidance.
Impact: SLIGHTLY POSITIVE
Significant Adjusted EBITDA beat...again. Continuing its post-IPO streak of beating expectations/guidance, Coveo reported Q3/F23 revenue of $28.5mm (up 23% y/y and 2% q/q), slightly ahead of expectations (TD: $27.9mm/consensus: $28.0mm), with another significant beat on Adjusted EBITDA (($2.9mm) vs. TD: ($4.9mm)/consensus:($4.0mm)). SaaS subscription revenue grew 25% y/y and 4% q/q to $26.4mm, driven by solid demand across all lines of business, especially Commerce, which had another record bookings quarter bolstered by a record new customer win (>$1mm). Current SaaS RPOs grew 28% y/y and 4% q/q to ~$92.1mm. The Adjusted EBITDA beat was driven by the better-than-expected revenue and gross margins and lower-than-expected OpEx, as Coveo continues to drive incremental efficiency gains.
F2023 guidance increased. F2023 guidance for SaaS Subscription Revenue and Total Revenue was increased slightly (~0.5-1% at the midpoint), with a more significant improvement in its Adjusted Operating Loss guidance that was >10% better than consensus and its previous guidance.
Demand remains healthy, but growth is slowing. SaaS subscription organic growth fell below 30% y/y this quarter, coming in at ~26% in cc, with Q4/F23 guidance implying a further slowdown to ~17-19% y/y growth in cc. Coveo is experiencing solid demand, particularly for high ROI solutions (e.g., Commerce, Service), helping lead to continued increases in its pipeline. However, as mentioned last quarter, the uncertain macro environment is resulting in longer sales cycles and more deal slippage (but not lost deals), leading to the slowing growth.
M&A on the horizon? Coveo incurred ~$0.3mm in transaction-related expenses in Q3/F23, the first such expense in F2023, possibly indicating an M&A transaction in the near term. With $208mm in cash, no debt, and ~$30mm needed to get to breakeven, Coveo has plenty of dry powder to complete a material acquisition.
TD Investment Conclusion
We are increasing our target price to C$13.00 (from C$11.00), based on 6.0x our C2024 (C2023 previously) revenue forecast.