Yesterday, we hosted meetings with CFO Brandon Nussey and Chief Business Officer Nick Goode.
Impact: NEUTRAL
CRGA is building momentum. Coveo is in the midst of rolling out CRGA to its 20 beta program design partners, with management indicating that it is already receiving great early feedback, while initial results look promising. Coveo stated that one customer is already close to going live, following a successful proof-of-concept in its Service operations, and that implementation times have been relatively quick.
It is targeting CRGA general availability by the end of C2023, but among other things, Azure capacity constraints (CRGA is using OpenAI's GPT-3.5 Turbo) could help dictate the timing, as Coveo is currently sending traffic to multiple regions to reduce latency.
GenAI interest could help drive cross-sell/up-sell activity. Chairman/CEO Louis Tetu's schedule is full of meetings with C-Suite executives who want to know how Coveo can help them deploy GenAI solutions. Management believes this could help it more effectively cross-sell/up-sell, given the senior executive engagement (vs. primarily working with separate/siloed, lower-level Commerce and Customer Service division heads, for example).
Macro still challenging, but there are several reasons for optimism.
Management indicated that the enterprise software market remains challenging, particularly for winning new customers. However, management is optimistic about its growth prospects for F2025, driven by CRGA/GenAI demand and its new SAP partnership, in particular, while ongoing land-and-expand success and an improved macro could further help drive a re-acceleration in organic revenue growth back toward (or possibly through) the 30% range in the coming years.
Still on the hunt for acquisitions. With ~$170mm in cash post-SIB and <$15mm needed to get to positive operating cash flow (still expected next year), Coveo is looking to deploy its excess cash for share buybacks and M&A. Potential targets fall in three groups:
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Technology (e.g., visual search, sentiment analysis) — likely <$10mm in size;
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Financially accretive — ~$20mm-$30mm in size with material revenue and complementary technology; and
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Market-share consolidation — likely larger deals (possibly much larger than $25mm); Coveo's bar for these types of acquisitions is very high.