Q1/F25: REASONS FOR OPTIMISM
THE TD COWEN INSIGHT
CVO is delivering strong tangible results for CRGA customers, reinforcing its leading (Gen)AI competitive position. These successes appear to be creating a flywheel that should help drive a re-acceleration in growth. Although patience may be required, given the (perceived) Elliott overhang, we think the risk/reward is attractive, especially with it trading at the bottom of its historical range.
Impact: NEUTRAL
In-line revenue. Q1 revenue of $32.2mm and SaaS subscription revenue of $30.6mm were both slightly ahead of guidance. SaaS subscription revenue grew ~7% y/y (~12% excluding Qubit churn).
Another Adjusted EBITDA beat. Adjusted EBITDA of ($1.7mm) was above guidance and consensus (TD: ($2.0mm)/consensus: ($2.3mm)), aided by continued strong cost control. FCF was $2.0mm and net cash increased to $159.4mm (~$131mm post-SIB).
Q2 guidance a bit light; F2025 unchanged. SaaS subscription revenue and total revenue guidance for Q2/F25 came in ~1%/~3% below expectations respectively with Adjusted EBITDA guidance slightly below consensus.
F2025 guidance was reiterated, with a strengthening pipeline aided by CRGA and the improvement in bookings expected to help drive stronger growth, particularly in H2/F25.
The bottom end of F2025 SaaS subscription and revenue guidance implies H2 growth in- line to slightly above Q1 levels (i.e., no material improvement in bookings trends), which we believe looks conservative given more positive data points including stronger bookings/ pipeline activity.
Winning new customers. Helped by CRGA and improving demand conditions, CVO has seen a pickup in new customer wins. Q1 had net new CRGA customer wins, including a leading global manufacturer of GPUs that is very familiar with AI (Nvidia?), and was its second best quarter to date for net new customer pipeline generation (>2x q/q increase). Net new CRGA customers should help boost the average deal size and ultimately growth.
Strong competitive position with CRGA. CVO has >30 live CRGA enterprise customers, with that number expected to grow faster, as it is seeing an increasing number of customers moving past the education/testing phase and the market moving to the "show me" stage.
With many case studies showing a high ROI (even above gains from its core Coveo Relevance Cloud Platform), we believe there is room for CVO to increase pricing. CVO stated CRGA's competitive win-rate is very high (>90%) with Service seeing the strongest demand.
The volume of queries from CRGA had increased ~10x since January, highlighting the significant increase in customer interest in GenAI solutions.