E2open(ETWO) - 2023 Q3 - Quarterly Report

PART I. Financial Information This section presents the company's unaudited financial statements, management's analysis, and disclosures on market risks and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the period ended November 30, 2022, detailing the Logistyx acquisition and a significant goodwill impairment charge Condensed Consolidated Balance Sheets Total assets decreased to $4.79 billion from $5.41 billion as of November 30, 2022, primarily due to a goodwill impairment, impacting overall financial position Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | November 30, 2022 | February 28, 2022 | | :--- | :--- | :--- | | Total current assets | $274,736 | $356,138 | | Goodwill | $3,306,233 | $3,756,871 | | Total assets | $4,792,382 | $5,405,455 | | Total current liabilities | $339,805 | $440,367 | | Notes payable (long-term) | $1,042,459 | $863,577 | | Total liabilities | $1,774,665 | $1,921,284 | | Total stockholders' equity | $3,017,717 | $3,484,171 | Condensed Consolidated Statements of Operations Revenue for the three months ended November 30, 2022, increased to $164.9 million with a $5.5 million net income, contrasting with a $416.7 million net loss for the nine-month period due to a $514.8 million goodwill impairment Three Months Ended November 30, (Unaudited, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total revenue | $164,893 | $137,002 | | Subscriptions | $134,884 | $106,969 | | Gross Profit | $84,143 | $64,216 | | Loss from operations | $(6,251) | $(54,442) | | Net income (loss) | $5,503 | $(64,289) | | Net income (loss) attributable to E2open | $4,805 | $(59,217) | | Basic EPS | $0.02 | $(0.19) | Nine Months Ended November 30, (Unaudited, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total revenue | $485,950 | $281,408 | | Subscriptions | $396,052 | $219,728 | | Gross Profit | $243,268 | $130,912 | | Goodwill impairment | $514,816 | $— | | Loss from operations | $(555,594) | $(94,786) | | Net loss | $(416,703) | $(257,632) | | Net loss attributable to E2open | $(375,239) | $(221,992) | | Basic EPS | $(1.24) | $(0.98) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $43.2 million for the nine months ended November 30, 2022, while investing activities used $222.7 million primarily for acquisitions, ending with $98.8 million in cash Cash Flow Summary for Nine Months Ended November 30, (Unaudited, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $43,151 | $28,182 | | Net cash used in investing activities | $(222,716) | $(798,859) | | Payments for acquisitions, net | $(179,243) | $(774,232) | | Net cash provided by financing activities | $103,351 | $632,987 | | Net decrease in cash, cash equivalents and restricted cash | $(75,736) | $(136,033) | | Cash, cash equivalents and restricted cash at end of period | $98,818 | $71,509 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies and financial statement specifics, including the Logistyx and BluJay acquisitions, a $514.8 million goodwill impairment, debt structure, and revenue recognition - On March 2, 2022, the company acquired Logistyx for an estimated fair value of $183.4 million, including $90 million in cash at closing and subsequent installment payments[37] - A significant decline in the company's market capitalization triggered an interim goodwill impairment test in Q2 fiscal 2023, resulting in a non-cash impairment charge of $514.8 million[64][66] - As of November 30, 2022, the company had $1.08 billion outstanding on its 2021 Term Loan and $10.0 million outstanding on its Revolving Credit Facility, with $145.0 million available borrowing capacity[85][90] - Remaining performance obligations totaled approximately $795.1 million as of November 30, 2022, expected to be recognized as revenue over the next five years[126] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting the impact of acquisitions, the $514.8 million goodwill impairment, liquidity, and non-GAAP financial measures for the reported periods Results of Operations Revenue for Q3 FY23 increased 20% to $164.9 million and 73% to $486.0 million for the nine-month period, though a $514.8 million goodwill impairment led to a $555.6 million operating loss Revenue Comparison (in thousands) | Period | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Nov 30 | $164,893 | $137,002 | $27,891 | 20% | | Nine Months Ended Nov 30 | $485,950 | $281,408 | $204,542 | 73% | Gross Profit Comparison (in thousands) | Period | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Nov 30 | $84,143 | $64,216 | $19,927 | 31% | | Nine Months Ended Nov 30 | $243,268 | $130,912 | $112,356 | 86% | - The nine-month period was heavily impacted by a $514.8 million goodwill impairment charge recognized in the second quarter of fiscal 2023 due to a significant decline in the company's market capitalization[182][221] - Interest expense increased significantly year-over-year for both the three-month and nine-month periods, driven by additional term loans for acquisitions and higher market interest rates[199][222] Non-GAAP Financial Measures The company provides non-GAAP metrics like Adjusted EBITDA, which was $56.2 million for Q3 FY23 (up 22%) and $155.9 million for the nine-month period (up 44%), to reflect core operating performance Adjusted EBITDA Reconciliation Highlights (in thousands) | Period | Net Income (Loss) | Adjusted EBITDA | Adjusted EBITDA Margin | | :--- | :--- | :--- | :--- | | Three Months Ended Nov 30, 2022 | $5,503 | $56,155 | 34.1% | | Three Months Ended Nov 30, 2021 | $(64,289) | $45,890 | 31.1% | | Nine Months Ended Nov 30, 2022 | $(416,703) | $155,902 | 32.1% | | Nine Months Ended Nov 30, 2021 | $(257,632) | $108,581 | 33.1% | - Non-GAAP measures exclude items like amortization of deferred revenue fair value adjustments, goodwill impairment, transaction costs, and share-based compensation to better reflect core performance[231][233] Liquidity and Capital Resources As of November 30, 2022, the company had $85.7 million in cash and $145.0 million available credit, with management confident in sufficient resources to meet obligations, despite a $1.08 billion term loan - The company had $85.7 million in cash and cash equivalents and $145.0 million of unused borrowing capacity as of November 30, 2022[253] - Net cash from operating activities for the nine months ended Nov 30, 2022 was $43.2 million, up from $28.2 million YoY[264] - The company has a Tax Receivable Agreement (TRA) liability of $58.2 million as of November 30, 2022, which requires payments to selling equity holders based on realized tax savings[269] - On January 9, 2023, the company repaid the outstanding $10.0 million balance on its 2021 Revolving Credit Facility, increasing available capacity to $155.0 million[260][177] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its market risks during the three and nine months ended November 30, 2022, from those previously disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2022 - No material changes in market risks were reported for the period[282] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of November 30, 2022, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[284] - No material changes to internal controls over financial reporting were identified during the quarter ended November 30, 2022[285] PART II. Other Information This section provides disclosures on legal proceedings, risk factors, equity sales, and a comprehensive list of exhibits Legal Proceedings The company is subject to various contingencies in the ordinary course of business but does not currently believe their resolution will have a material adverse effect on its financial statements - The company does not expect any current legal proceedings to have a material adverse effect on its financial condition or results of operations[287] Risk Factors There have been no material changes to the company's risk factors during the reported period from those disclosed in its Annual Report on Form 10-K for the fiscal year ended February 28, 2022 - No material changes in risk factors were reported for the period[288] Unregistered Sales of Equity Securities and Use of Proceeds The company has a $100.0 million share repurchase program approved on January 20, 2022, under which no shares of Class A Common Stock have been repurchased to date - A $100.0 million share repurchase program is authorized, but no shares have been repurchased to date[289][290] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Certificate of Incorporation, Bylaws, and certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act