This item contains a discussion of our business, including a general overview of our business, results of operations, liquidity and capital resources as well as quantitative and qualitative disclosures about market risk. The following discussion should be read in conjunction with Part II, Item 7., Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K and the unaudited condensed financial statements and related notes beginning on page 5. This Item 2 contains "forward looking" statements that involve risks and uncertainties. See Forward-Looking Statements at the beginning of this Quarterly Report.
Overview
We are a leading provider of cloud-based, end-to-end SCM software. Our platform spans many key strategic and operational areas including omni-channel, demand sensing, supply planning, global trade management, transportation and logistics and manufacturing and supply management. Our software combines networks, data and applications to provide a deeply embedded, mission-critical platform that allows clients to optimize their channel and supply chains by accelerating growth, reducing costs, increasing visibility and driving improved resiliency. Given the mission-critical nature of our solutions, we maintain long-term relationships with our clients, which is reflected by our high gross retention and long client tenure. In aggregate, we serve clients in all major countries in the world across a wide range of end-markets, including consumer goods, food and beverage, manufacturing, retail, technology and transportation, among others.
Recent Events
OnMarch 2, 2022 ,E2open, LLC acquiredLogistyx Technologies, LLC (Logistyx) for a purchase price of$185 million , with an estimated fair value of$183.4 million , including$90 million paid in cash at closing. An additional$95 million will be paid in two installments onMay 31, 2022 andAugust 29, 2022 . We have the option to finance the remaining payments, at our discretion, through cash or a combination of cash and Class A Common Stock. TheMay 31, 2022 payment of$37.4 million was paid in cash. TheAugust 29, 2022 payment shall consist of at least$26.1 million in cash with the total payment equal to$57.6 million , less adjustments for final net working capital. OnApril 6, 2022 , the 2021 Credit Agreement was amended to include a$190.0 million incremental term loan. The proceeds were used to repay the$80.0 million outstanding balance under the 2021 Revolving Credit Facility incurred to finance the initial purchase price payment for Logistyx. The additional cash was used to pay the$37.4 million payment due to Logistyx inMay 2022 and may be used to pay the remaining$57.6 million payment due to Logistyx inAugust 2022 , should we elect to pay in cash rather than a combination of cash and stock, and may also be used for share repurchases or other general corporate purposes. 32 --------------------------------------------------------------------------------
Results of Operations
The following table is our Condensed Consolidated Statements of Operations for
the periods indicated:
Three Months Ended May 31,
($ in thousands) 2022 2021
Revenue $ 160,381 $ 66,327
Cost of revenue (78,681 ) (38,159 )
Total gross profit 81,700 28,168
Operating Expenses
Research and development 22,562 15,701
Sales and marketing 24,155 12,514
General and administrative 20,346 13,717
Acquisition-related expenses 6,764 9,778
Amortization of acquired intangible assets 21,535 3,830
Total operating expenses 95,362 55,540
Loss from operations (13,662 ) (27,372 )
Interest and other expense, net (15,413 ) (4,903 )
Change in tax receivable agreement liability (1,670 ) (2,499 )
Gain (loss) from change in fair value of warrant liability 5,455
(59,943 )
Gain (loss) from change in fair value of contingent
consideration
4,200 (73,260 ) Total other expenses (7,428 ) (140,605 ) Loss before income tax provision (21,090 ) (167,977 ) Income tax benefit (expense) 8,469 (1,378 ) Net loss (12,621 ) (169,355 ) Less: Net loss attributable to noncontrolling interest (1,265 ) (27,097 ) Net loss attributable to E2open Parent Holdings, Inc.$ (11,356 ) $ (142,258 ) Net loss attributable toE2open Parent Holdings, Inc. Class A common stockholders per share: Basic$ (0.04 ) $ (0.76 ) Diluted$ (0.04 ) $ (0.76 ) Weighted-average common shares outstanding: Basic 301,373 187,051 Diluted 301,373 187,051 In the discussion of our results of operations, we may quantitatively disclose the impact of our acquired products and services to the extent they remain ascertainable. Revenue and expense contributions from our acquisitions for the respective period comparisons generally were not separately identifiable due to our strategy of rapid integration of these businesses into our existing operations.
Three Months Ended
Revenue
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Revenue:
Subscriptions $ 129,547 $ 51,034 $ 78,513 nm
Professional services and other 30,834 15,293 15,541 nm
Total revenue $ 160,381 $ 66,327 $ 94,054 nm
Percentage of revenue:
Subscriptions 81 % 77 %
Professional services and other 19 % 23 %
Total 100 % 100 %
33
-------------------------------------------------------------------------------- Subscriptions revenue was$129.5 million for the three months endedMay 31, 2022 , a$78.5 million increase compared to subscriptions revenue of$51.0 million for the three months endedMay 31, 2021 . The increase in subscriptions revenue was primarily due to the BluJay Acquisition, Logistyx Acquisition and new organic subscription sales predominantly driven by increases in products utilized across our current client portfolio, as well as the$22.5 million amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination in the first quarter of fiscal 2022. With the early adoption of ASU 2021-08, a fair value adjustment to deferred revenue for the BluJay and Logistyx acquisitions was not recorded; therefore, amortization of the fair value adjustment to deferred revenue similar to the Business Combination adjustment did not occur for the BluJay and Logistyx acquisitions.
Professional services revenue was
31, 2022
months ended
Acquisition and Logistyx Acquisition.
Our subscriptions revenue as a percentage of total revenue increased to 81% for the first quarter of fiscal year 2023 compared to 77% for the first quarter of fiscal 2022. The first quarter of fiscal 2022 included$22.5 million amortization related to the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination, reducing subscription revenue as a percentage of total revenue for that period.
Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended May 31, ($ in thousands) 2022 2021 $ Change % Change Cost of revenue: Subscriptions$ 33,134 $ 16,508 $ 16,626 nm Professional services and other 20,646 10,140 10,506 nm Amortization of acquired intangible assets 24,901 11,511 13,390 nm Total cost of revenue$ 78,681 $ 38,159 $ 40,522 nm Gross profit: Subscriptions$ 71,512 $ 23,015 $ 48,497 nm Professional services and other 10,188 5,153 5,035 98 % Total gross profit$ 81,700 $ 28,168 $ 53,532 nm Gross margin: Subscriptions 55 % 45 % Professional services and other 33 % 34 % Total gross margin 51 % 42 % Cost of subscriptions was$33.1 million for the three months endedMay 31, 2022 , a$16.6 million increase compared to$16.5 million for the three months endedMay 31, 2021 . This increase was primarily driven by$10.9 million related to the BluJay and Logistyx acquisitions and an increase in personnel costs for items such as salaries and incentive compensation. Cost of professional services revenue was$20.6 million for the three months endedMay 31, 2022 , a$10.5 million increase compared to$10.1 million for the three months endedMay 31, 2021 . The BluJay Acquisition in fiscal year 2022, Logistyx Acquisition in fiscal year 2023 and increased personnel costs such as salaries and incentive compensation accounted for$10.2 million of the increase in cost of professional services revenue.
Amortization of acquired intangible assets was
months ended
for the three months ended
Acquisition in
Our subscriptions gross margin was 55% in the first quarter of fiscal 2023 as
compared to 45% for the first quarter of fiscal 2022 primarily due to the
amortization of the fair value adjustment to deferred revenue related to the
purchase price allocation in the Business Combination. With the early adoption
of ASU 2021-08, the BluJay and Logistyx deferred revenue was recorded under ASC
606 and not at fair value at the acquisition date; therefore, amortization of
the fair value adjustment to deferred revenue similar to the Business
Combination adjustment did not occur for the BluJay or Logistyx acquisitions.
Our professional services gross margin was relatively flat year-over-year at 33%
for first quarter of fiscal 2023 compared to 34% in the first quarter of fiscal
2022.
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Research and Development
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Research and development $ 22,562 $ 15,701 $ 6,861 44 %
Percentage of revenue 14 % 24 %
Research and development expenses were $22.6 million for the three months ended
May 31, 2022 , a $6.9 million , or 44%, increase compared to $15.7 million in the
prior year. The increase was primarily due to $6.1 million related to the BluJay
and Logistyx acquisitions as well as major strategic partnership initiatives
around product development efforts during fiscal year 2022, which resulted in
net increased personnel costs such as salaries and incentive compensation and
consulting expenses as compared to the prior year period.
Sales and Marketing
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Sales and marketing $ 24,155 $ 12,514 $ 11,641 93 %
Percentage of revenue 15 % 19 %
Sales and marketing expenses were $24.2 million for the three months ended May
31, 2022 , an $11.6 million increase compared to $12.5 million in the prior year.
The increase was primarily driven by the BluJay Acquisition in fiscal 2022 and
Logistyx Acquisition in fiscal 2023 as well as additional expenses associated
with creating a new logo sales team and corporate branding and hiring additional
marketing resources.
General and Administrative
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
General and administrative $ 20,346 $ 13,717 $ 6,629 48 %
Percentage of revenue 13 % 21 %
General and administrative expenses were $20.3 million for the three months
ended May 31, 2022 , a $6.6 million increase compared to $13.7 million in the
prior year. The increase was primarily attributable to the BluJay and Logistyx
acquisitions.
Other Operating Expenses
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Acquisition and other related
expenses $ 6,764 $ 9,778 $ (3,014 ) -31 %
Amortization of acquired
intangible assets 21,535 3,830 17,705 nm
Total other operating
expenses $ 28,299 $ 13,608 $ 14,691 nm
Acquisition and other related expenses were $6.8 million for the three months
ended May 31, 2022 , a $3.0 million decrease compared to $9.8 million for the
three months ended May 31, 2021 . The decrease was mainly related to legal and
consulting expenses associated with the BluJay Acquisition in fiscal 2022.
Amortization of acquired intangible assets were $21.5 million for the three
months ended May 31, 2022 , a $17.7 million increase, compared to $3.8 million
for the three months ended May 31, 2021 . The increase was a result of the BluJay
Acquisition in September 2021 and Logistyx Acquisition in March 2022 .
35
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Interest and Other Expense, Net
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Interest and other expense, net $ (15,413 ) $ (4,903 ) $ (10,510 ) nm
Interest and other expense, net was $15.4 million for the three months ended May
31, 2022 , a $10.5 million increase compared to $4.9 million in the prior year.
The increase was primarily driven by the additional term loans used for the
BluJay Acquisition in September 2021 and Logistyx Acquisition, as well as higher
interest rates in fiscal year 2023.
Change in Tax Receivable Agreement
Three Months Ended May 31, ($ in thousands) 2022 2021 $ Change % Change Change in tax receivable agreement liability$ (1,670 ) $ (2,499 ) $ 829 -33 % During the three months endedMay 31, 2022 , we recorded a$1.7 million expense related to the change in the fair value of the tax receivable agreement liability, including interest compared to$2.5 million during the three months endedMay 31, 2021 . Pursuant to ASC 805, Business Combination and relevant tax law, we calculated the fair value of the tax receivable agreement payments and identified the timing of the utilization of the tax attributes. The tax receivable agreement liability, related to exchanges as of the Business Combination date, is revalued at the end of each reporting period with the gain or loss as well as the associated interest reflected in change in tax receivable agreement liability in the Condensed Consolidated Statements of Operations in the period in which the event occurred. In addition, under ASC 450, transactions with partnership unit holders after the acquisition date will result in additional Tax Receivable Agreement liabilities that are recorded on a gross undiscounted basis. There was no change in the Tax Receivable Agreement liability under ASC 450 for the three months endedMay 31, 2022 or 2021.
Gain (Loss) from Change in Fair Value of Warrant Liability
Three Months Ended May 31, ($ in thousands) 2022 2021 $ Change % Change Gain (loss) from change in fair value of warrant liability$ 5,455 $ (59,943 ) $ 65,398 nm We recorded a gain of$5.5 million during the three months endedMay 31, 2022 , a$65.4 million increase compared to a loss of$59.9 million in the prior year for the change in fair value on the revaluation of our warrant liability associated with our public, private placement and forward purchase warrants. We are required to revalue the warrants at the end of each reporting period and reflect in the Condensed Consolidated Statements of Operations a gain or loss from the change in fair value of the warrant liability in the period in which the change occurred.
Gain (Loss) from Change in Fair Value of Contingent Consideration
Three Months Ended May 31, ($ in thousands) 2022 2021 $ Change % Change Gain (loss) from change in fair value of contingent consideration$ 4,200 $ (73,260 ) $ 77,460 nm We recorded a gain of$4.2 million during the three months endedMay 31, 2022 , a$77.5 million increase compared to a loss of$73.3 million in the prior year for the change in fair value on the revaluation of our contingent consideration associated with our restricted B-2 common stock and Series 2 RCUs. We are required to revalue the contingent consideration at the end of each reporting period or upon conversion and reflect in the Condensed Consolidated Statements of Operations a gain or loss from the change in fair value of the contingent consideration in the period in which the change occurred. 36 --------------------------------------------------------------------------------
Provision for Income Taxes
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Loss before income taxes $ (21,090 ) $ (167,977 ) $ 146,887 -87 %
Income tax benefit (expense) 8,469 (1,378 ) 9,847 nm
Loss before income taxes was $21.1 million for the three months ended May 31,
2022 , a $146.9 million decrease compared to $168.0 million for the three months
ended May 31, 2021 . This decrease is primarily related to a $53.5 million
increase in gross profit due to the BluJay and Logistyx acquisitions along with
a decrease in the amortization of the fair value adjustment to deferred revenue
related to the purchase price allocation in the Business Combination of $22.4
million . Additionally, the decrease was related to a $65.4 million change in the
fair value adjustments for the warrant liability and a $77.5 million change
associated with the fair value adjustments for the contingent consideration
liability related to the restricted Series B-2 common stock and Series 2 RCUs.
These increases in income were partially offset by $25.1 million of higher
operating expenses, $10.5 million of higher interest expense and $17.7 million
increase in the amortization of the intangible assets when compared to the prior
year.
Income tax benefit was $8.5 million for the three months ended May 31, 2022
compared to an income tax expense of $1.4 million for the three months ended May
31, 2021 . The change in our effective tax rate between periods is primarily due
to year-over-year changes in book losses in certain jurisdictions for which no
benefit can be recognized, changes in the impact of book income and losses of
affiliates on the carrying amount of our partnership investment and changes in
the mark-to-market gains and losses on certain contingent liabilities.
Non-GAAP Financial Measures
This document includes Non-GAAP revenue, Non-GAAP subscriptions revenue, Non-GAAP gross profit, Non-GAAP gross margin, EBITDA and Adjusted EBITDA, which are non-GAAP performance measures that we use to supplement our results presented in accordance withU.S. GAAP. We believe these non-GAAP measures are useful in evaluating our operating performance, as they are similar to measures reported by our public competitors and are regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. These non-GAAP measures are not intended to be a substitute for anyU.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. We calculate and define Non-GAAP revenue and Non-GAAP subscriptions revenue as revenue excluding the impact of the deferred revenue fair value adjustment related to the purchase price allocation in the Business Combination. We calculate and define Non-GAAP gross profit as gross profit excluding amortization of the deferred revenue fair value adjustment, depreciation and amortization, share-based compensation and certain other non-cash and non-recurring items. We define and calculate EBITDA as net income or losses excluding interest income or expense, income tax expense or benefit, depreciation and amortization and Adjusted EBITDA as further adjusted for the following items: amortization of the deferred revenue fair value adjustment, transaction-related costs, changes in the tax receivable agreement liability, (gain) loss from changes in the fair value of the warrant liability and contingent consideration, share-based compensation and certain other non-cash and non-recurring items as described in the reconciliation below. We also report Non-GAAP gross profit and Adjusted EBITDA as a percentage of Non-GAAP revenue as additional measures to evaluate financial performance. We include these non-GAAP financial measures because they are used by management to evaluate our core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. These non-GAAP measures exclude certain expenses that are required in accordance withU.S. GAAP because they are non-recurring (for example, in the case of transaction-related costs and amortization of the deferred revenue fair value adjustment), non-cash (for example, in the case of depreciation, amortization, changes in the tax receivable agreement liability, (gain) loss from changes in the fair value of the warrant liability and contingent consideration, share-based compensation and amortization of the deferred revenue fair value adjustment) or are not related to our underlying business performance (for example, in the case of interest income and expense). There are limitations to non-GAAP financial measures because they exclude charges and credits that are required to be included in theU.S. GAAP financial presentation. The items excluded fromU.S. GAAP financial measures such as net income or loss to arrive at non-GAAP financial measures are significant components for understanding and assessing our financial performance. As a result, non-GAAP financial measures should be considered together with, and not alternatives to, financial measures prepared in accordance withU.S. GAAP. 37 --------------------------------------------------------------------------------
The table below presents our Non-GAAP revenue reconciled to our reported
revenue, the closest
Three Months Ended May 31,
($ in thousands) 2022 2021
Subscriptions revenue $ 129,547 $
51,034
Business Combination adjustment (1) -
22,502
Non-GAAP subscriptions revenue 129,547
73,536
Professional services and other revenue 30,834 15,293 Non-GAAP revenue$ 160,381 $ 88,829 (1) Includes the amortization of the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination. As ofFebruary 28, 2022 , the remaining balance of the deferred revenue purchase price adjustment was$0.5 million which results in an immaterial quarterly amortized amount reported in the Condensed Consolidated Statements of Operations; therefore, an amount will not be presented for fiscal 2023.
The table below presents our Non-GAAP gross profit reconciled to our reported
gross profit, the closest
Three Months Ended May 31,
($ in thousands) 2022 2021
Gross profit
Reported gross profit $ 81,700 $ 28,168
Business Combination adjustment (1) - 22,502
Depreciation and amortization 28,421 14,109
Non-recurring/non-operating costs (2) 900 342
Share-based compensation (3) 230 320
Non-GAAP gross profit $ 111,251 $ 65,441
Gross margin 50.9 % 42.5 %
Non-GAAP gross margin 69.4 % 73.7 %
(1)
Includes the fair value adjustment to deferred revenue related to the purchase
price allocation in the Business Combination. As of February 28, 2022 , the
remaining balance of the deferred revenue purchase price adjustment was $0.5
million which results in an immaterial quarterly amortized amount reported in
the Condensed Consolidated Statements of Operations; therefore, an amount will
not be presented for fiscal 2023.
(2)
Primarily includes other non-recurring expenses such as systems integrations and
consulting and advisory fees.
(3)
Reflects non-cash, long-term share-based compensation expense, primarily related
to senior management.
The table below presents our Adjusted EBITDA reconciled to our net loss, the
closest
Three Months Ended May 31, ($ in thousands) 2022 2021 Net loss$ (12,621 ) $ (169,355 ) Adjustments: Interest expense, net 15,582 6,137 Income tax (benefit) expense (8,469 )
1,378
Depreciation and amortization 53,297 20,205 EBITDA 47,789 (141,635 ) EBITDA Margin 29.8 % -213.5 % Business Combination adjustment (1) -
22,502
Acquisition-related adjustments (2) 6,764
9,778
Change in tax receivable agreement liability (3) 1,670
2,499
(Gain) loss from change in fair value of warrant liability (4) (5,455 )
59,943
(Gain) loss from change in fair value of contingent
consideration (5)
(4,200 )
73,260
Non-recurring/non-operating costs (6) 1,626 447 Share-based compensation (7) 3,206 2,397 Adjusted EBITDA$ 51,400 $ 29,191 Adjusted EBITDA Margin 32.0 % 32.9 % 38
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(1)
Includes the fair value adjustment to deferred revenue related to the purchase price allocation in the Business Combination. As ofFebruary 28, 2022 , the remaining balance of the deferred revenue purchase price adjustment was$0.5 million which results in an immaterial quarterly amortized amount reported in the Condensed Consolidated Statements of Operations; therefore, an amount will not be presented for fiscal 2023.
(2)
Primarily includes advisory, consulting, accounting and legal expenses incurred in connection with mergers and acquisitions activities including costs related to the Business Combination, BluJay Acquisition and Logistyx Acquisition.
(3)
Represents the fair value adjustment at each balance sheet date for the Tax
Receivable Agreement along with the associated interest.
(4)
Represents the fair value adjustment at each balance sheet date of the warrant
liability related to the public, private placement and forward purchase
warrants.
(5)
Represents the fair value adjustment at each balance sheet date of the contingent consideration liability related to the restricted Series B-1 and B-2 common stock, Sponsor Side Letter and Series 1 and 2 RCUs. The Series B-1 common stock, Sponsor Side Letter and Series 1 RCUs were automatically converted into our Class A Common Stock on a one-to-one basis as ofJune 8, 2021 .
(6)
Primarily includes non-recurring expenses such as systems integrations, legal
entity rationalization and consulting and advisory fees.
(7)
Reflects non-cash, long-term share-based compensation expense, primarily related to senior management. For the three months endedMay 31, 2022 and 2021, share-based compensation included less than$0.1 million and$0.4 million expense, respectively, attributable to certain unit-based awards in connection with theAmber Road, Inc. acquisition in 2019.
Three Months Ended
Non-GAAP Subscriptions Revenue
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Non-GAAP subscriptions revenue $ 129,547 $ 73,536 $ 56,011 76 %
Percentage of Non-GAAP revenue 81 % 83 %
Non-GAAP subscriptions revenue was $129.5 million for the three months ended May
31, 2022 , a $56.0 million increase compared to $73.5 million for the three
months ended May 31, 2021 . The increase in Non-GAAP subscriptions revenue
relates to the BluJay and Logistyx acquisitions and new organic subscription
sales predominately driven by increases in products utilized across our client
portfolio.
Non-GAAP Revenue
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Non-GAAP revenue $ 160,381 $ 88,829 $ 71,552 81 %
Non-GAAP revenue was $160.4 million for the three months ended May 31, 2022 , a
$71.6 million increase compared to $88.8 million for the three months ended May
31, 2021 . The increase in Non-GAAP revenue was mainly due to the $56.0 million
increase in our subscriptions revenue related to the BluJay and Logistyx
acquisitions and new organic sales driven by increases in products utilized
across our current client portfolio. Additionally, $15.5 million of the increase
was due to an increase in our professional services revenue primarily related to
the BluJay and Logistyx acquisitions.
39
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Gross Profit
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Gross profit $ 81,700 $ 28,168 $ 53,532 nm
Gross margin 50.9 % 42.5 %
Gross profit was $81.7 million for the three months ended May 31, 2022 , a $53.5
million increase compared to $28.2 million for three months ended May 31, 2021 .
The increase in gross profit was primarily due to the BluJay and Logistyx
acquisitions as well as by the decrease in the amortization of the fair value
adjustment to deferred revenue related to the purchase price allocation in the
Business Combination of $22.4 million . Gross margin was 51% for the first
quarter of fiscal 2023 compared to 43% for the first quarter of fiscal 2022.
Non-GAAP Gross Profit
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Non-GAAP gross profit $ 111,251 $ 65,441 $ 45,810 70 %
Non-GAAP gross margin 69.4 % 73.7 %
Non-GAAP gross profit was $111.3 million for the three months ended May 31,
2022 , a $45.8 million increase compared to $65.4 million for the three months
ended May 31, 2021 . The increase in adjusted gross profit was primarily due to
the BluJay and Logistyx acquisitions. The Non-GAAP gross margin decreased in the
first quarter of fiscal 2023 to 69% compared to 74% in the first quarter of
fiscal 2022.
EBITDA
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
EBITDA $ 47,789 $ (141,635 ) $ 189,424 nm
EBITDA margin 29.8 % -213.5 %
EBITDA was $47.8 million for the three months ended May 31, 2022 , a $189.4
million increase compared to a loss of $141.6 million for three months ended May
31, 2021 . EBITDA margins increased to 30% for the first quarter of fiscal 2023
compared to a negative 214% in the prior year. The increase in EBITDA and EBITDA
margin was primarily related to the decrease of $22.4 million in the
amortization of the fair value adjustment to deferred revenue related to the
purchase price allocation in the Business Combination, the change of $65.4
million for the fair value adjustment for the warrant liability and change of
$77.5 million associated with the fair value adjustment for the contingent
consideration liability related to the restricted Series B-2 common stock,
partially offset by the decrease of $3.0 million of acquisition related expenses
and higher revenues in fiscal 2023.
Adjusted EBITDA
Three Months Ended May 31,
($ in thousands) 2022 2021 $ Change % Change
Adjusted EBITDA $ 51,400 $ 29,191 $ 22,209 76 %
Adjusted EBITDA margin 32.0 % 32.9 %
Adjusted EBITDA was $51.4 million for the three months ended May 31, 2022 , a
$22.2 million increase compared to $29.2 million for the three months ended May
31, 2021 . Adjusted EBITDA margin was 32% for the first quarter of fiscal 2023
compared to 33% for the first quarter of fiscal 2022.
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of
our business operations, including working capital, capital expenditure needs,
contractual obligations and other commitments, with cash flows from operations
and other sources of funding. Current working capital needs relate mainly to
employee compensation and benefits, as well as interest and debt. Our ability to
expand and grow our business will depend on many factors, including working
capital needs and the evolution of our operating cash flows.
40
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We had $129.2 million in cash and cash equivalents and $155.0 million of unused
borrowing capacity under our 2021 Revolving Credit Facility as of May 31, 2022 .
See Note 13, Notes Payable to the Notes to the Unaudited Condensed Consolidated
Financial Statements. We believe our existing cash and cash equivalents, cash
provided by operating activities and, if necessary, the borrowing capacity under
our 2021 Revolving Credit Facility will be sufficient to meet our working
capital, debt repayment, capital expenditure requirements and share repurchases
for at least the next twelve months.
In the future, we may enter into arrangements to acquire or invest in
complementary businesses. To facilitate these acquisitions or investments, we
may seek additional equity or debt financing.
Share Repurchase Program
OnJanuary 20, 2022 , our board of directors approved the 2022 Share Repurchase Program. Share repurchases may be made from time to time in the open market, in privately negotiated transactions, pursuant to other Rule 10b5-1 trading plans or other available means. The 2022 Share Repurchase Program is subject to market conditions and other factors, and does not obligate us to repurchase any dollar amount or number of Class A Common Stock and the program may be extended, modified, suspended or discontinued at any time, without prior notice. We plan to fund this program with cash on hand.
No shares of Class A Common Stock have been repurchased to date.
Debt
2021 Term Loan and Revolving Credit Facility
OnFebruary 4, 2021 ,E2open, LLC , our subsidiary, entered into the Credit Agreement which provided for the 2021 Term Loan in the amount of$525.0 million and the 2021 Revolving Credit Facility for$75.0 million . OnSeptember 1, 2021 , the Credit Agreement was amended to include a$380.0 million incremental term loan, an increase in the letter of credit sublimit from$15.0 million to$30.0 million and an increase in the 2021 Revolving Credit Facility from$75.0 million to$155.0 million . OnApril 6, 2022 , the Credit Agreement was amended to include a$190.0 million incremental term loan. The 2021 Revolving Credit Facility will mature onFebruary 4, 2026 .E2open, LLC can request increases in the revolving commitments and additional term loan facilities, in minimum amounts of$2.0 million for each facility. Principal payments are due on Credit Agreement the last day of each February, May, August and November commencingAugust 2021 . The Credit Agreement was payable in quarterly installments of$1.3 million beginning inAugust 2021 ; however, the payments were increased to$2.3 million with the addition of the incremental term loan beginning inNovember 2021 . The payment increased to$2.7 million with the addition of the$190.0 million incremental term loan beginning inMay 2022 . The Credit Agreement is payable in full onFebruary 4, 2028 . The 2021 Term Loan has a variable interest rate which was 4.83% and 4.00% as ofMay 31, 2022 andFebruary 28, 2022 , respectively. As ofMay 31, 2022 andFebruary 28, 2022 , the 2021 Term Loan had a principal balance outstanding of$1,086.4 million and$899.2 million , respectively. There were no outstanding borrowings, no letters of credit and$155.0 million available borrowing capacity under the 2021 Revolving Credit Facility as ofMay 31, 2022 . There were$80.0 million of borrowings outstanding at an interest rate of 5.25%, no outstanding letters of credit and$75.0 million available borrowing capacity under the 2021 Revolving Credit Facility as ofFebruary 28, 2022 .
Cash Flows
The following table presents net cash from operating, investing and financing
activities:
Three Months Ended May 31,
($ in thousands) 2022 2021
Net cash provided by operating activities $ 24,880 $ 39,266
Net cash used in investing activities (146,447 ) (12,385 )
Net cash provided by (used in) financing activities 102,259 (699 )
Effect of exchange rate changes on cash and cash
equivalents 889
(1,161 )
Net (decrease) increase in cash, cash equivalents and
restricted cash
(18,419 )
25,021
Cash, cash equivalents and restricted cash at beginning of period 174,554
207,542
Cash, cash equivalents and restricted cash at end of period$ 156,135 $ 232,563 41
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Three Months Ended
As ofMay 31, 2022 , our consolidated cash, cash equivalents and restricted cash was$156.1 million , a$18.4 million decrease from our balance of$174.6 million as ofFebruary 28, 2022 . Net cash provided by operating activities for the three months endedMay 31, 2022 was$24.9 million compared to$39.3 million for the three months endedMay 31, 2021 . The$14.4 million decrease in cash was primarily driven by the use of$65.0 million of cash for working capital items such as the increase in other liabilities and the recognition of deferred revenue in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. This decrease in cash was partially offset by the additional gross profits contributed by BluJay and Logistyx as well as organic growth. Net cash used in investing activities was$146.4 million and$12.4 million for the three months endedMay 31, 2022 and 2021, respectively. During fiscal year 2023, net cash of$124.2 million was used for the Logistyx Acquisition. Additionally, we made a$3.0 million minority investment in a private firm during the first quarter of fiscal 2023. During the three months of fiscal 2023 and 2022,$19.3 million and$12.4 million were used for the acquisition of property and software related to our data centers, respectively. Net cash provided by financing activities for the three months endedMay 31, 2022 was$102.3 million compared to net cash used of$0.7 million for three months endedMay 31, 2021 . The increase in cash provided by financing activities was mainly due to the$190.0 million incremental term loan that was used to repay the$80.0 million outstanding revolver balance and first deferred payment for the Logistyx Acquisition. Additionally, we paid$4.8 million in debt issuance costs related to the$190.0 million term loan during fiscal 2023 and repaid$2.7 million on the 2021 Term Loan.
Tax Receivable Agreement
Concurrently with the completion of the Business Combination, we entered into the Tax Receivable Agreement with certain selling equity holders ofE2open Holdings that requires us to pay 85% of the tax savings that are realized because of increases in the tax basis ofE2open Holdings' assets. This increase is either from the sale of Common Units or exchange of Common Units for shares of Class A Common Stock and cash, as well as tax benefits attributable to payments under the Tax Receivable Agreement, We will retain the benefit of the remaining 15% of these cash savings. The term of the Tax Receivable Agreement will continue until all such tax benefits have been utilized or expired unless we exercise our right to terminate the Tax Receivable Agreement for an amount representing the present value of anticipated future tax benefits under the Tax Receivable Agreement or certain other acceleration events occur. Amounts payable under the Tax Receivable Agreement will be contingent upon, among other things, our generation of taxable income over the term of the Tax Receivable Agreement. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits subject to the Tax Receivable Agreement, we would not be required to make the related payments under the Tax Receivable Agreement. Although the amount of any payments required to be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year. The liability related to the Tax Receivable Agreement was$68.3 million and$66.6 million as ofMay 31, 2022 andFebruary 28, 2022 , respectively, assuming (1) a constant corporate tax rate of 24.1%, (2) no dispositions of corporate subsidiaries, (3) no material changes in tax law and (4) we do not elect an early termination of the Tax Receivable Agreement. However, due to the uncertainty of various factors, including: (a) the timing and value of future exchanges, (b) the amount and timing of our future taxable income, (c) changes in our tax rate, (d) no future dispositions of any corporate stock and (e) changes in the tax law and (f) changes in the discount rate, the likely tax savings we will realize and the resulting amounts we are likely to pay to the selling equity holders ofE2open Holdings pursuant to the Tax Receivable Agreement are uncertain. Additionally, interest will accrue on the portion of the Tax Receivable Agreement liability recorded under ASC 805 at a rate of LIBOR plus 100 basis points. The portion of the Tax Receivable Agreement liability under ASC 450 is recorded on a gross undiscounted basis. The liability recorded on the balance sheet does not include an estimate of the amount of payments to be made if certain sellers exchanged their remaining interests inE2open Holdings for our common stock, as this amount is not readily determinable and is dependent on several future variables, including timing of future exchanges, stock price at date of exchange, tax attributes of the individual parties to the exchange and changes in future applicable federal and state tax rates. 42 -------------------------------------------------------------------------------- In addition, if we exercise our right to terminate the Tax Receivable Agreement or certain other acceleration events occur, we will be required to make immediate cash payments. Such cash payments will be equal to the present value of the assumed future realized tax benefits based on a set of assumptions and using an agreed upon discount rate, as defined in the Tax Receivable Agreement. The early termination payment may be made significantly in advance of the actual realization, if any, of those future tax benefits. Such payments will be calculated based on certain assumptions, including that we have sufficient taxable income to utilize the full amount of any tax benefits subject to the Tax Receivable Agreement over the period specified therein. The payments that we would be required to make will generally reduce the amount of the overall cash flow that might have otherwise been available to us, but we expect the cash tax savings we will realize from the utilization of the related tax benefits will exceed the amount of any required payments. We are entitled to receive quarterly tax distributions fromE2open Holdings , subject to limitations imposed by applicable law and contractual restrictions. The cash received from such tax distributions will first be used to satisfy any tax liability and then make any payments required under the Tax Receivable Agreement. We expect that such tax distributions will be sufficient to fund both our tax liability and the required payments under the Tax Receivable Agreement.
Contingent Consideration
The contingent consideration liability was$41.4 million and$45.6 million as ofMay 31, 2022 andFebruary 28, 2022 , respectively. The fair value remeasurements resulted in a gain of$4.2 million and loss of$73.3 million for the three months endedMay 31, 2022 and 2021, respectively. The contingent liability represents the Series B-1 common stock, Series B-2 common stock, Series 1 RCUs and Series 2 RCUs. As ofJune 8, 2021 , the Series B-1 common stock and Series 1 RCUs were no longer reflected as a contingent consideration liability as the 5-day VWAP of our Class A Common Stock exceeded$13.50 per share. This triggering event resulted in the 8,120,273 Series B-1 common stock converting into Class A Common Stock and 4,379,557 Series 1 RCUs becoming 4,379,557 Common Units ofE2open Holdings along with entitling the holders of the newly vested common units to 4,379,557 shares of Class V Common Stock. Logistyx Acquisition OnMarch 2, 2022 ,E2open, LLC acquiredLogistyx Technologies, LLC for a purchase price of$185 million , and at an estimated fair value of$183.4 million , including$90 million paid in cash at closing. An additional$95 million will be paid in two installments onMay 31, 2022 andAugust 29, 2022 . We have the option to finance the remaining payments, at our discretion, through cash or a combination of cash and Class A Common Stock. TheMay 31, 2022 payment of$37.4 million was paid with cash. TheAugust 29, 2022 payment shall consist of at least$26.1 million in cash with the total payment equal to$57.6 million , subject to standard working capital adjustments and other contractual provisions.
Leases
We account for leases in accordance with ASC 842, Leases, which requires lessees to recognize lease liabilities and ROU assets on the balance sheet for contracts that provide lessees with the right to control the use of identified assets for periods of greater than 12 months.
Our non-cancelable operating leases for our office spaces and vehicles have
various expiration dates through
undiscounted future cash flows utilized in the calculation of the lease
liabilities as of
thereafter. These numbers include interest of
Our non-cancelable financing lease arrangements relate to software and computer equipment and have various expiration dates throughAugust 2024 . We have the right to purchase the software and computer equipment anytime during the lease or upon lease completion. Under these leases, our undiscounted future cash flows utilized in the calculation of the lease liabilities as ofMay 31, 2022 were:$2.1 million forJune 1, 2022 throughFebruary 28, 2023 and$2.1 million for fiscal 2024. These numbers include interest of$0.2 million . 43 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance withU.S. GAAP. Preparation of the financial statements requires management to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our condensed consolidated financial statements. Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies to the Notes to the Consolidated Financial Statements in our 2022 Form 10-K. There have been no changes to our critical accounting policies and estimates during the three months endedMay 31, 2022 from those previously disclosed in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report.
Recent Accounting Pronouncements
Recently issued and adopted accounting pronouncement are described in Note 2,
Accounting Standards to the Notes to the Condensed Consolidated Financial
Statements.
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