Earnings Call: Q2 2023

Nov 7, 2022

Afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coveo Second Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, There will be a question and answer session. Thank you. Mr. Moon, you may now begin your conference. Good afternoon, and thank you for joining us today. With me on the call are Louis Taitout, Chairman and Chief Executive Officer of Coveo and Jean Lavaguerre, Chief Financial Officer. Before we get started, I would like to note that certain statements made during this conference call are forward looking statements within the meaning of applicable securities laws, including those regarding our future plans, objectives, growth and expected performance, including our outlook for the Q3 fiscal year 2023. These forward looking statements are given only as of the date of this call. While we believe any forward looking statements we make are reasonable, Actual results could differ materially because the statements are based on current expectations and are subject to risks and uncertainties. We do not undertake or expressly disclaim Further information on these and other factors that could affect the company's financial results is included in filings we make with Canadian Securities Regulatory Authorities, included under the section titled Risk Factors in the company's most recently filed annual information form, which is available on our SEDAR profile at www. Sedar.com. Additionally, some of the financial measures discussed on this call are either non IFRS measures or operating metrics used in our industry. A discussion on why we use non IFRS financial measures and operating metrics and where applicable Reconciliation schedule showing IFRS versus non IFRS results are currently available in our press release and our MD and A dated as of today, which may both be found on our Investor Relations website at ir. Coveo.com and our SEDAR profile. Please note that unless otherwise stated, all references to any financial figures are in U. S. Dollars. Lastly, slides accompanying this conference call are available for viewing and accessible on our IR website under the News and Events section. I'll now turn the call over to Louis to begin. Louis? Thank you, Paul, and thank you all for joining us today. I am pleased to report 2nd quarter results that reflect our strong relationships with customers who view Coveo as a mission critical partner that helps them optimize business outcomes and our commitment to improve our operational efficiency. We believe the current macroeconomic environment is driving enterprises in all industries towards solutions that provide tangible ROI and that our differentiated scalable AI powered platform can deliver rapid time to value through relevant search, personalization, recommendations and merchandising. It is our firm belief that digital transformation is an imperative, no matter the economic cycle and that businesses must invest in true personalization to effectively compete in the new digital experience economy. With the Coveo Relevance Cloud platform, each interaction is a true one to 1 personalized experience powered by AI and machine learning. Regardless of whether a user is authenticated or anonymous, by treating individuals as people and not personas. Our platform can drive significant improvements in revenue, profitability and Customer and Employee Satisfaction. For the Q2 ended September 30, we delivered year over year SaaS subscription revenue growth of 47% and total revenue growth of 43%. Please note that FX represented an approximately 3% headwind against our year over year growth rates for both SaaS subscription and total revenue. Our net expansion rate for the quarter remains strong at 111%, demonstrating our continued traction with customer retention and strong cross sells and up sells with our existing customer base. Our revenue growth, seasonally lower expenses related to vacations taken during the summer month, favorable FX movements and continued focus on operational efficiency resulted in an adjusted operating loss of $4,700,000 for the 2nd quarter, significantly ahead of our guidance. And based on these continuous improvements and efficiency, We will also be meaningfully improving our adjusted operating loss guidance for the fiscal 2023. All lines of business continue to grow double digits organically on a trailing 12 month basis. The trend of an allegation of sales cycles due to the current macroeconomic environment persisted in fiscal Q3, in particular for larger deal sizes and those within our workplace line of business. These deals are oftentimes requiring additional layers of approval and taking longer to close than before. In the Q2, we continued to land a number of new logos and have the strongest commerce bookings quarter in the history of the company. Examples of new commerce customers in the quarter include a global online manufacturer and retailer of licensed Sportwear and Merchandise, a large European based electrical retailer specializing in household appliances and electricals and the Lottery and Gaming Crown Corporation located in Canada. In our service line of business, which included a solid year over year increase in sales force integration bookings. Notable new customers include a leading provider of critical decision Support Tools and Services for the Global Investment Community, a global provider of industrial software solutions and CrowdStrike Holdings, a NASDAQ listed provider of cybersecurity software and solutions. We also completed expand transactions across of all of our lines of business, including a multinational semiconductor manufacturer, United Healthcare Services, Motorola, Honeywell, Salesforce and many others with whom we continue to grow our relationships. I would now like to take a moment to highlight some recent examples of customers using Coveo's platform to optimize business outcomes and provide personalized relevant digital experiences. Back in the Q3 of fiscal 2022, We first highlighted a significant expand transaction with Informatica, a leading provider of cloud data management solutions, and I'm pleased to report the partnership continues to thrive. They have continued their growth as a global leader in the space and along the way have expanded their use of Coveo as a key part of their digital transformation strategy. Today Coveo helps to power their internal and external digital experiences, including in marketing, documentation, knowledge, Service, Marketplace and Professional Services. Leveraging Coveo and their service organization, they have reported annual cost savings of more than $3,500,000 related to improved case deflection. We are also working with Coupa, a global technology platform that provides business spent management solutions. They have implemented Coveo in self-service and contact center use cases, helping them save significant support costs by increasing case deflection and self-service success rates. Coveo is now supporting Coupa in onboarding a new all in one support platform experience for their customers, which is expected to further improve their support metrics and costs. Lastly, Coveo has partnered with a global e commerce technology group and brand owner based in Europe that controls dozens of brands and has more than 200 clients capabilities for their in house teams. They're working to deploy Coveo's personalization solutions across additional brands within the group. The next phase of the partnership involves a combined go to market strategy leveraging Coveo's commerce and merchandising solution that has a value added service for other retailers. We also want to mention some new product features for our commerce and service customers that further differentiate our offerings and help improve revenue, profitability and customer satisfaction and loyalty by providing personalized relevant content. We have made new enhancements to the Coveo Merchandising Hub to allow social proofing or badging to be easily and scalably deployed on product listing pages of those of our commerce customers. Deploying badging on these pages, which are often amongst the most visited on commerce sites, has the potential to generate significant increases in conversion and revenues for our customers. In service, we launched to the Quantic Insights Panel component to enable administrators to easily deploy a next generation Coveo hosted Insight Panel in Salesforce. This new capability can help to drive rapid time to value and innovation as managers can easily update the side panel configuration and functionality in real time via the Coveo admin console. These new product Enhancements were initially made available to a select group of customers via an early access program. And based on the success, They will now be generally available to all customers in this and the subsequent quarter. We continue to prioritize research and development as a strategic investment focus and will provide more exciting product updates as they become available. To conclude, as we approach our first anniversary as a public company, I'm incredibly proud of what we've accomplished so far. And I'm excited for the future of Coveo as we continue to help enterprises succeed with our Relevance Cloud platform. With the investments we have made in our people and technology today, we believe we've built a strong foundation that will allow us to continue to execute on our growth plans, while also continuing to accelerate our path to profitability. With that, I will now hand the call over to Jean to discuss our quarterly results in more detail. Jean? Thank you, Louis, and thank you again everyone for joining us on today's call. Bookings in the quarter were strong, especially in Commerce, which had its largest bookings quarter ever. Commerce bookings in the 2nd quarter benefited from the 2 commerce deals that closed early in the quarter that we discussed during our last earnings call. One of those deals was with a global e commerce technology group and brand owner as highlighted earlier, and the other was a large cross sell of Coveo's commerce capabilities to a legacy Qubit customer. In addition to these, in the Q2, we saw the 1st enterprise sale of the caveo platform to a new customer by Qubit sales personnel, which was the global manufacturer and retailer of licensed sports merchandise and collectibles Louis had also highlighted. Despite our strong second quarter bookings growth, we continued to see larger deals getting pushed due to current macroeconomic environment, including some workplace deals. Often additional layers of approval are now being required and deals are taking longer to close. The strength of the U. S. Dollar had a negative impact on our top line performance for the Q2 with approximately 20% of our revenue in currencies other than the U. S. Dollar. However, more than 50% of our costs are in Canadian dollars and this combined with the seasonality of expenses related to accrued vacation and our continued focus on operating efficiency had a positive impact on our 2nd quarter adjusted operating loss. As such and given the current FX and macroeconomic environment, we have improved the midpoint of our full year adjusted operating loss guidance by $8,500,000 while maintaining our revenue guidance for the fiscal year. Moving to our 2nd quarter results, SaaS subscription revenue was CAD25,500,000 an increase of 47% year over year and total revenue came in at $27,900,000 growing 43% year over year. Note that in both cases, the strengthening of the U. S. Dollar represented an approximately 3% headwind to growth. Organic SaaS subscription revenue growth was greater than 30% on a constant currency basis, with the strengthening of the U. S. Dollar representing an approximately 2% headwind. Please note all figures include the contribution from our Cubit acquisition, which was completed in our October 14, 2021. Current SaaS subscription remaining performance obligations as of September 30, 2022 came in at $88,700,000 growing 51% compared to a year ago. Our net expansion rate as of September 30, 2022 was 111%, representing our traction with upsells and cross sells and continued strength in gross retention rates. This falls comfortably within our net expansion rate target range of 105% to 115%. Turning to our operating results, our 2nd quarter gross profit percentage came in at 76% compared to 78% for the same period last year. Adjusted gross profit percentage, which normalizes for the effects of share based payments and related expenses and acquisition related compensation was 78% for the 2nd quarter, a decrease of 1% compared to a year ago. Product gross profit percentage was 82% in the quarter, in line with the prior year and our adjusted product gross profit percentage was 83% for the quarter, a 1% increase compared to the year ago period. Professional services gross profit percentage was 16% for the quarter compared to 35% for the same period last year, while adjusted professional services gross profit percentage was 24%, a 14% decrease compared to the prior year period and primarily driven by the lower professional services gross margin of Cubit, which we continue to improve. Operating loss for the quarter was $11,600,000 and adjusted operating loss for the quarter was 4,700,000 As discussed, our adjusted operating loss for this quarter was favorably impacted by the weakening of non U. S. Currencies compared to the U. S. Dollar. Net loss came in at $9,900,000 compared to net loss of $61,900,000 in the Q2 of fiscal year 2022. Finishing with guidance. For the Q3 of fiscal year 2023, we expect SaaS subscription revenue to be between 25.6 $26,100,000 representing growth of 21% to 23% year over year. Total revenue in the range of 27.6 $28,100,000 representing growth of 19% to 21% year over year. Adjusted operating loss in the range of $5,000,000 $6,000,000 and between 104.8 and 105.3 weighted average shares outstanding. Please note that our Q3 guidance assumes an FX headwind against both SaaS subscription revenue and total revenue of approximately 3%, similar to the Q2. For the fiscal year 2023, we expect SaaS subscription revenue to be between $101,500,000 $103,000,000 representing growth of 30% to 32% year over year. Total revenue in the range of $110,000,000 to $111,500,000 representing growth of 27% to 29% year over year. Adjusted operating loss in the range of $23,000,000 $25,000,000 and between $104,000,000 $105,000,000 weighted average shares outstanding. This guidance does take into account some of the macroeconomic uncertainty we are seeing in the market today. It also assumes FX rates roughly in line with where they are today for both growth and adjusted operating loss. Before we move to Q and A, I would like to remind members of the financial analyst and the institutional investor community of our 1st Capital Markets Day being held at the TMX Market Centre in Toronto on November 17, 2022. Registration information is available on our Investor Relations website at ir. Caveo.com or by emailing our Investor Relations department at investorskaveo.com. We hope you can join us during this important half day event where you will meet other members of our team and learn more about our differentiated AI powered platform. And with that, operator, you may now open the line for questions. Thank And your first question will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead. Hi, good afternoon. Could you provide a bit more color in terms of your commentary on the lengthening sales cycles? So you said it's predominantly on workplace and larger deals. Is it affecting all verticals and all deal sizes, however? Or Are you not seeing it really in e commerce? And then just any geographical nuance? I mean, clearly, you're still getting over the finish line given your solid quarter, but Yes. What are you saying? Yes. So I think overall, what we're seeing is no different than every other software company, Thanos, which is a little more scrutiny in terms of approvals. So from pipeline to closed sales, a little elongated. What we're seeing, however, is clearly not that these deals aren't going away, number 1. Number 2, more focus, which is really the strategy that we're deploying, much more focus on deals where we can demonstrate ROI and effectively our solution, as you know, drives ROI. In the workplace area, we're seeing a little more weakness, which is why we're shifting to service and commerce because We can demonstrate ROI because we think companies and we are seeing companies making more investments and anything that can increase their revenue or reduce their costs, while the workplace type of solutions, as you know, tend to be a little more soft ROI. But overall, the deals aren't going away and we continue to see the tailwinds for especially the types of applications of our platform that generate ROI. Yes, great. That's great, Louis. And Thanos, if I can also, as you know, Thanos, we had our best quarter for commerce. That was our best quarter ever, right? So we're really pleased as much as we're absolutely seeing some elongated sales cycles for workplace given the softer ROI. Commerce right now, certainly very pleased with the traction. And Europe also was a good quarter for us. I know we've seen a lot of companies showing some difficulties in Europe, For us, it was a good quarter as well. So really pleased on turning on both counts there. Great. And then could you provide an update in terms of the ramp of some of the newer partnerships, such as with SAP and Adobe? Yes. We haven't announced anything yet as it relates to Different things in that area. We continue to be very strong in those ecosystems, working with clients for both, I would say, predominantly Salesforce, SAP and Adobe. And as I think we commented earlier on earlier calls, our customers are large enterprise customers of those companies. They have strong balance sheets and they continue to invest in high ROI solutions. We're pleased with those partnerships and they remain a key portion of our strategy. Great. I'll pass the line. Thanks guys. Thank you. Next question will be from Ittai Kidron at Oppenheimer. Please go ahead. Thanks. Jean, maybe you can talk about hi, guys. Maybe you can talk about Linearity in the quarter, any comments on that? Yes, certainly Ittai. Thank you for the question. So does your question pertain to the top line or to the bottom line? Top line. Top line, okay. So typically, like most enterprise software companies. We tend to July, August tend to be quite slow. Of course, so deals do We tend to come in later during the quarter. Typically, the next quarter, December quarter is our strongest during the fiscal year. So certainly from that perspective, while we did see some of those sales cycle elongated, As we mentioned earlier, it was still very strong for commerce, Ittai. Really Europe as well, it was We had some good traction there as well. Even as you know in Europe, summer tends to be a little slower there. And So overall, nothing that was that different except for those new larger deals. We did see some additional Chuck, some additional questions from customers where we need to educate them a little bit more on the ROI of our solution. Ultimately, as Louis mentioned, did take a little longer, but ultimately, I think we had a we're happy with the strong booking this quarter that we reported. Okay. John, can you talk about cash burn? What's your philosophy here? How do you think about time line to breakeven? And is what you're seeing here from a macro point. Is it giving you any pause from a hiring standpoint? Any cost cutting measures that you have in mind? Or Put differently, what is it that you need to see to take aggressive stance on the cost side? Yes. Thank you for the question, Ittai. It's great segue because right now, As a management team, we're extremely focused on accelerating our path to profitability. I'm sure, Ty, that you've seen us on the adjusted operating loss front. You see that beat consensus was around $6,000,000 We came in at $4,700,000 So really pleased with the performance this quarter. When you look at the guidance for the entire fiscal year, we've improved our guidance on the adjusted operating loss by a full $8,500,000 That's almost 800 basis points. So clearly, you can We're hearing the markets, we're hearing investors that they want an accelerated path to profitability. Certainly, from our perspective, we're being extremely frugal on all everywhere, sales and marketing, R and D, G and A, all three of them as a percentage of revenue came in lower than the previous quarter. So you're still seeing us being more efficient. So certainly from that perspective, when you think of to Your initial question, Ittai, with regards to cash. So we burned for 1st 6 months, we burned about $2,000,000 of cash for 6 months. So certainly pleased with that cash burn, right? When you look at, we've got over $200,000,000 in the bank account right now. How much cash it will take us to get to profitability will be maybe $30,000,000 $40,000,000 but it will be a much smaller number that will leave aside some cash for us, of course, for our to still keep a very strong balance sheet as well cash from M and A, though we'll be disciplined there as well. So certainly, I think you should expect us within the next 2 years to report guidance to cash flow breakeven from that perspective. Okay. But just to reiterate, have you frozen all hiring at this point? Like what's your philosophy on incremental headcount additions right now? No, no, no, we have not. If you go to our website atai, you'll see over 30 jobs being open right now. Though, this is less than you would have seen over the previous quarters where we were closer to 50%, 60%. So look, we're still being very disciplined. No question right now that as we're seeing those we've talked about those sales cycles, right, being we need to be more cautious with regards to how we manage cost. So right now, still being very disciplined. R and D is an area, as Louis mentioned, that We're very excited with some of the innovation we're bringing to market, especially commerce and service. So from that perspective, it's a disciplined approach, Ittai. But as you saw, right, 8,500,000 lats with regards to our guidance for adjusted operating loss. Clearly, we're being very cautious, but certainly No important cost cutting right now that is being that is in the works at Coveo. I appreciate the color. Thank you. Thank you, Ty. Next question will be from David Weiss at Scotiabank. Please go ahead. Hi, David. Hi. Congrats on the quarter. Thank you. So, yes, so we've been obviously Monitoring some of the overall environment in the tech businesses that are sort of aligned with your TAM. You mentioned obviously strong activity in terms of Commerce and with the bookings. What about on the service side of the business? Have you seen any strength or what potentially we can improve in that aspect of it. No, we continue to see strength in both commerce and service. And we think that will continue to obviously, we're conscious about the We read the same news, but what we're seeing in our business are some significant growth tailwinds associated with Any solution that can either increase revenue or reduce costs. And our service value proposition It is essentially around enabling more self driving more self-service and customer satisfaction while avoiding to increase costs in a growth environment while reducing costs in a company that for a company that's not growing. And we continue to see that this is important because companies, especially in a tougher environment, the first thing they want to do is preserve their customers, keep their current customers happy and their current revenue streams and their ability to up sell to those and cross sell to those customers. And that's what we allow them to do. So for that reason and because we can demonstrate the financial returns of those solutions and we're really strong on that, We do not see and foresee or foresee any weakness in that area. Okay, great. And Just one more here on more like the top line aspects of sort of related to that. So you disclosed on October 25 that you've Surpassed 50 customers among leading finance insurance and FinTech firms. Any details on the cadence of reaching that milestone? Was this Seem to accelerate more recently or has Coveo steadily been building customers in that area over time? Yes. I mean, we're building customers predominantly across a certain set of verticals. We're very strong in the tech sector and the financial services sector and retail sector as well as manufacturing, B2B Commerce and Healthcare. And so we continue. So for us, these are very important milestones. We just released our FinServ offering. So those are vertical solutions and customers in those verticals like to see deep expertise and and caveo black belts in their vertical specifically and that's the business model that we're deploying. So yes, it is an important milestone and we expect more. Okay, great. And then perhaps Your commentary regarding improving operating loss margins. Just to be back into what's implied for Q4 of 2023, In particular, you see some, I would say, year over year strength there in margins. Could you Actually discuss some of the drivers of that. Is that the seasonality that you mentioned earlier? Or do you expect that sort of cadence to continue going forward? Thanks. Yes. Thank you, David. Just to clarify your question. So are you talking about the December quarter, the March quarter? So you referred to Q4, so is it Q4 Canada or Q4 fiscal? The Q4 fiscal. Before fiscal. Yes, yes. No, so you're correct in stating that, yes, that the March quarter will be the adjusted operating loss right now that we're guiding Where it is higher than the December one. I think you're correct. There's some seasonality with regards to vacation that we see typically in December that we don't see in the March quarter. As well, we have annual salary raises that kick in on Jan 1. So that's certainly when you look at those elements, that's why we're seeing a little bit of a higher adjusted operating loss in Q4 fiscal than Q3 fiscal. Though we will still, of course, Right now, every department, we're asking everyone to be very cautious with how they're spending and investing right now. But right now, we are being cautious with this guidance for when you look at Q4 fiscal Just about bringing off, David. Hopefully that answers your question. Yes, that's great. Thank you. I'll pass the line. Thank you. Thank you. Next question will be from Paul Treiber at RBC Capital Markets. Please go ahead. Hi, Paul. Thanks very much and good afternoon. Just a similar question to the last one, but just in regards to Q3, so the December quarter, It looks like the operating loss with the midpoint of guidance is a little bit larger than Q2. Was there anything in Q2, FX or otherwise that was a bigger help in Q2 that you don't expect in Q3? Yes. Thank you for the question, Paul. No, that you're absolutely correct, right. So we benefited from approximately $600,000 in those accrued vacations. So as you know, We have a lot of employees in R and D in the province of Quebec. As you know, so summers tend to be short and which is why we see a lot of vacation in July August. So certainly, when we look, we fast forward to the December quarter, we're certainly not expecting that kind of a reduction in the salary expense from vacation when you compare December to September. Does that answer your question, Paul? Yes. That's helpful to understand some of those moving parts. The second one is just on the bigger picture, And you mentioned you passed to profitability a couple of times. How do you look at the balance between longer term and passed to profitability versus in sustaining investments or growth. Like what do you sort of see as a trade off? How do you think about it as you manage your business over the next couple of years? Yes, no, absolutely. Thank you. Yes, go ahead. No, I was just going to qualify It's really around we're not sacrificing the growth opportunity in exchange of Gains in operating leverage, we're really not and that was John's response earlier with regards to hiring and etcetera. We continue to hire in key areas such as R and D and sales and marketing. But it's really a lot around strategy and efficiency gains for the company where we can focus on certain markets and the minutiae of our marketing around where we can gain customers that provide the best financial return relative to both short and long term relative to our efforts and elsewhere within the company driving a lot consciousness around efficiency. And I would add on top of that and turn it over to Jean that the talent market. The talent landscape has changed for us positively over the past 6 months. We're seeing a much more healthy talent environment where we can get great talent and we can also demand efficiency and all of that combined provides a good environment to manage So Paul, to answer that's a great question. It's a question that we every quarter at the board, management level we discussed, right? So our view right now is when we look at the rule of 40, for us, dollars 1 in growth does not equal $1 adjusted operating loss margin, right? So we clearly view for us 1.5:one, right, favoring growth. As you know, Growth is certainly very challenging for everyone. And certainly from our perspective, we will continue to make investment where we see and of course, it's a disciplined approach, but we're at 110,000,000 in revenue this year. We're still in the early innings of this great market we're in, right? So certainly, we'll keep making these investments. This being said, we understand we're in 2022, not in 2021 anymore. And Paul, I'm sure You've seen and appreciate the fact that adjusted operating loss being reduced by $8,500,000 for this fiscal year. We are absolutely marching towards an accelerated path to profitability versus when we went public. But certainly trying to balance those and not in a one to one fashion rather on 1.5 to 1 I think that's the if I can summarize, I think the best way to we're thinking about one versus the other. Does that answer your question, Paul? Yes, that's very helpful. Then my last question, just on the elongating sales cycles, you mentioned a comment about ROI and customers are looking to, I guess, understand or to do more work on understanding the ROI. What are the strategies that you're implementing to try to Showcase the ROI, improve the ROI and maybe try to tighten up those sales cycles. I love that question. We've always been huge believers of triangulating the financial returns of our solutions, and that goes all the way back into the product. A few years ago, we started making investments in the product in the area of analytics and dashboards and etcetera and key metrics that actually understand the again, the financial So we're in a great position to be able to show that to customers. We've also accumulated over the years a number of use cases where customers themselves will testify and will attest their own measurements and so on, which can come out as proof points in the sales cycles. So we run what's called the BVA team, a business value assessment team in the sales cycle where We basically, Paul, won't engage with a customer unless we have a clear view of the ROI that we can provide, which also allows us to command the kind of price points and maintain the price points of Coveo. We're typically the most expensive or the most the highest price solutions, I would argue, were the cheapest solution given the benefits that we create. And so that's part of our fabric and we're certainly emphasizing that. I'll go further than that. I think we actually believe as a firm that in 2023 with the economic backdrop and so on, the only solutions that we'll sell are going to be the ones that are just that are not technical solutions that are going to be the ones that can either increase revenue or reduce costs. And we're geared Precisely our business model is geared 100% towards achieving that. Thank you for taking my questions. Yes. Thank you. Next question will be from David Kwan at TD Securities. Please go ahead. Good afternoon, guys. I just wanted to clarify, I guess, as it relates to the fiscal 'twenty three revenue guidance here, I guess despite the better than expected Q2 that you guys delivered, is it just the unchanged nature of the guidance mostly due to, I guess the continued cautious view you guys have from macro environment perspective as well as FX or is there anything in there related to maybe the slower hire Is there anything else from a cost perspective? No, I think you're right on, David. I think when you look at FX, right, 3% headwind, if we assume that Exchange rates remain the same, right? So 3% of headwind from that perspective, number 1. Number 2, as you correctly stated, right? So we are seeing those sales cycle taking a bit longer. We're seeing additional steps. So here, we need to on the side of cautiousness. This being said, while we reaffirm guidance for the year, we're certainly we've vastly improved our adjusted operating loss guidance, right, by $8,500,000 So from that perspective, we're I believe that we're delivering what investors want, which is Keep maintaining on the top line, but being more efficient in how we invest our money with so certainly We believe that right now this has been a great quarter of delivering on both top line and bottom line, both looking at September as well as the guidance. Thanks, Sean. And on the gross margin side, it came in a bit ahead of my expectations. In particular, the gross margin of the professional services was higher than what I was looking for, which I assume was probably related to Cubic. So wondering if you could provide some color as to what happened this quarter and kind of your expectations going forward? Yes. No. So Kudos related to the R and D team, right? Not only are the R and D team, of course, focused on innovation and hopefully, you can join us in Toronto of our Capital Markets Day on November 17th, but you'll see a lot of that innovation. But on top of that, these folks are super cost conscious, right? So we're as you know, we're spinning a ton with all of those with the likes of AWS, GCP and the like And but we're being very disciplined. So you're seeing a 1% improvement in adjusted product gross profit. So very pleased with that. With regards to special services, David, I think you need to be a little bit careful. It tends to be a little choppier, Right on that one, right. So yes, you're right. I think we the team are the executive who is responsible for this Super Discipline. And I think the integration of Cubit with Coveo has been going well. It has been a change certainly for the Cubit team and the way they were handling professional services, they were thinking of professional services. I think we've kind of helped them to think a little bit differently and a little bit more along the lines of how we Coveo looked at it. And I think which is why you're seeing Those good margins on the professional servicing side, but keeping in mind that it will be a little bit choppy on that front. Thanks. And just the last question, maybe it's also for Jean, but Louis, feel free to jump in. Just given the abundance Cash we've got on the balance sheet right now and now even benefiting more from kind of some narrower than expected losses. I think you've got some pretty good flexibility in terms of how to deploy it. You guys have talked about M and A kind of being a key focus here. But any thoughts on share buybacks? Just curious how a buyback, whether it was NCIB or anything else Mike rank in terms of priorities for capital allocation. Yes. So thank you for Go ahead, John. Yes. So thank you for the question. I think it's a great one. It's the one that we've debated certainly at the Board. But right now, when we look at The market opportunity that we have in front of us, when you look at the return on that capital, we believe that right now that the best way for us Moving forward, we've been public as Louis said, right. We're coming up to our 1st year anniversary. We're very excited with the market opportunity. As you know, AI, machine learning in our market very much very early. So we're still seeing a ton of opportunities for us to consolidate the market in all four lines of business. This being said, David, as you know, it does take some time, right, for the private market multiples to come down, right, to come anywhere close to where the public comps are. So I think Nick Good, who is our Chief Corp. Dev Officer, is super disciplined. And right now, while we're still looking at many companies and talking to many companies, you will feel that we're taking a very disciplined approach, waiting for those private multiples to be a little bit more in line with what we're seeing in the public markets, and then you'll see us being A little bit more aggressive with more cubits, more TUSOs, more of those technology tuck ins. We still see a lot of opportunities there. But I think we just ask you to be a little bit patient as those multiples hopefully converge on both sides. So Louis, anything else you'd like to add on the strategy there? No, I think you've covered it. I would say, David, that right now, We've had our strongest commerce quarter ever and we continue to see tailwinds in that area. We're focusing a lot of our efforts, a lot of our energy on improving that offering. And right now that's happening for the most part organically. And we think It's a good use of our time. I understand we have quite a bit of capital on the balance sheet, but We still need to maybe we still want to be disciplined here and I'm sure we'll find a good way to deploy that capital when the time comes as Jean says That in a disciplined fashion, we see that it's a good return for the investors. So it sounds like share buybacks aren't high up on the prior day list then? That's correct. All right. Perfect. Thanks guys. Thank you. And your next question will be from Kingsley Crane at Canaccord. Please go ahead. Hi, guys. This is Gabriel Road. Hi, this is Gabriel actually for Kingsley. But yes, we were actually very excited to see the e commerce numbers doing well. So I was just wondering if you guys could give more color on like What percentage of booking now is in commerce or in e commerce? If you guys give more detail on that comparison to other sectors like service? Yes. So we don't actually break down exactly percentages for each line of business. But what I can tell you certainly right now is that commerce is our fastest growing line of business also. Service is our largest. When you look at percentage of ARR, Services is our largest line of business as you are probably aware, right? But when you look at But of course, we've been in the service line of business for 10 plus years. E commerce is more recent, right? We've been in that market for 3 plus years And it's been very exciting, both organically and of course with the acquisition of Cubit. Again, we're very excited at the next Capital Markets Day, we'll be showing you The merchandising hub that will be integrated, that's really Cubit Technology coming, converging with Coveo Commerce. So with that, certainly, that is the fastest growing line of business, which is commerce both on B2C and B2B front. With regards to workplace, as Louis mentioned, it's the one that it's still certainly very it's choppier. And right now, because of its softer ROI, This one tends to be more of a cross sell once we've landed a customer, a commerce or a service customers. And website for us is this easy entry point. It's got lower price points, but it's still an easy entry point when we partner with the likes of Adobe and the like to get into some customers and then to also cross sell, of course. So that's those are the ideas, but certainly very excited, of course, with commerce and especially having the our best commerce quarter ever. Awesome. Yes, that makes a lot of sense. And thank you for providing more color on that. On the sales, like the deal elongation and such, we were wondering if you also could provide more color on like Has there been any shift on contract duration? Like, do they still remain on around 3 year deals? Or has there been any pressure on that? Has there been a shift there? No, we have not seen an important shift. We're still very close to 3 years when you do the dollar average weighted term length. It's still very close to 3 years. Most of our customers, I go back To Louis' point, we're certainly when they look at the ROI that we're providing them with, they tend to in exchange for a longer term, We guarantee them for the next 3 years. Their subscription fee will be the same. There will be no increase, right? So that's a trade off that we're willing to make, right, in exchange for committing those 3 years. So customers tend to really partner with us for the long haul. When you look at our net expansion rate, That's over 110%, really, I think it just I think speaks volume to the gross renewal rate and of course the upsells and cross sell with those customers. Awesome. Thank you very much. Congrats on the quarter. Thank you. Thank you. Next question will be from Richard Tse at National Bank Financial. Please go ahead. Yes. Thank you. Hi, Richard. Hi, Richard. Hi, Richard. Hey, how are you? Thanks for the comments on the sales cycles. I'm just wondering maybe you can kind of Give us a bit of context in terms of the funnel and pipeline coverage, appreciating that the current environment to make Decisions may be tougher, but what does that funnel look like? Yes. Yes. Great question. Thank you for bringing that up. The headline is we continue to be pleased with our progress and how we're gaining efficiency with sales and marketing. And we did improve our efficiency quarter over quarter as well as year over year in the conversion. We see good pipeline generation, especially right now at the top of the funnel. It was a little we Saw a little dip in July in pipeline conversion. I think every company did because it was, I guess we refer to it as the holiday revenge. It was hard to talk to anyone after the pandemic, everybody it sounds like everybody was on holiday, That's just a minor thing. Overall, Richard, we feel good about the top of the funnel right now and how it's continuing to increase. Okay, great. And then the other one for me has to do with organic growth And I appreciate, I think you said it was sort of double digits on a trailing 12 months. What is sort of the split of that organic growth between sort of new labels and expansions and how would that compare versus last year? Yes. Thank you for the question, Richard. So right now, what we've seen historically has been more like sixty-forty new logos versus existing. Over the last couple of quarters, as certainly we've seen The economy is softening. It's kind of flipped, right? So we've seen a little bit more you know, 40 on new logos, 60 on the expand front. If you recall, Richard, for example, last quarter, we reported That amazing win, right, 1,000,000 of dollars, as you know, with a one of the large global software companies where for both their age for all of their agents worldwide for, of course, their website for support, as well as providing our technology within their products and they had 400,000 customers, right? So of course, those types of large deals, of course, tend to also favor the cross sell and up sell, right, versus new logos that we've seen, but we've also seen it this quarter, as well, so that tendency, so which is not unusual, of course, as Louis mentioned, with sales cycle being a little bit taking a little bit longer, a little bit more checks from procurement. But so that's how it's reflected certainly in the split there. Okay, great. Thank you. Thank you, Richard. Thank you. And at this time, gentlemen, we have no other questions. Please proceed with your closing. Thank you. Thank you, everyone. So we'd like to thank all of you for joining the earnings call today. We believe again that caveo remains uniquely positioned. We're helping companies optimize business outcomes using AI and we think that that kind of digital transformation is not slowing down. Tactically, we look forward to updating you in the future and perhaps interacting you at our Capital Markets Day next week in Toronto. We hope See most, if not all of you. And with that, operator, you can please end the call. Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please