Q4/F24 PREVIEW: LOW EXPECTATIONS HEADING INTO THE Q; FOCUS ON F2025 GUIDANCE
THE TD COWEN INSIGHT
The stock is down ~30% since March 1, significantly underperforming the peer group (down ~18%), and is now trading at ~2.7x EV/Revenue (C2025E) compared with the peer group average of ~6.8x. The shares are also trading below the C$8.50 SIB price from last July. We think the risk/reward looks attractive, given what we believe are relatively low expectations for the Q4 release/F2025 guidance.
Event:
Q4/F24 Results: Monday, June 3, 2024, after market close.
Conference Call: 5:00 p.m. ET (Dial-in: 1-888-664-6392; Webcast: Link). Impact: NEUTRAL
Expecting a slight rebound in growth. We are forecasting Q4/F24 revenue of $32.4mm,
in line with consensus, including SaaS subscription revenue of $30.6mm. Although y/y
SaaS subscription revenue growth is expected to continue moderating, primarily due to the expected Qubit-related churn, the mid-point of guidance and our estimate imply flattish to a slight improvement in q/q growth.
Our $2.0mm adjusted operating loss estimate is slightly ahead of consensus at $2.2mm and at the high end of guidance, as Coveo continues to execute well on its cost-optimization work. We note that Coveo has consistently delivered significant beats on its adjusted operating loss guidance in the past.
Focus on F2025 guidance. We believe investors will also be keying in on the guidance, particularly for F2025, as it should provide more insight into how management sees an expected rebound in organic growth to play out over the next year. Last quarter, Coveo indicated it was closing CRGA deals at an accelerating rate and across all four LoBs (~20% of bookings from CRGA), while the SAP partnership helped drive a doubling of European bookings y/y. However, we note that the enterprise IT spending environment remains challenging.
On the margin front, although Coveo now plans to increase S&M spend to take advantage of growth opportunities, we expect it to maintain its guidance of generating positive operating cash flow in F2025.
Building on early CRGA and SAP momentum is key to a re-acceleration in organic growth.
Our estimates/consensus assume an acceleration in organic revenue growth throughout F2025, with y/y organic growth getting back to ~20% y/y in Q3/F25 and strengthening further in Q4/F25. This significant re-acceleration in growth should be driven by the ramp of CRGA and the SAP partnership, as solid early bookings should translate into revenue in the coming quarters, and coincides with easier y/y comps starting in mid-F2025, as the headwind from the Qubit-related churn dissipates.