Mr. Louis Tetu reports

COVEO REPORTS SECOND QUARTER FISCAL 2024 FINANCIAL RESULTS

Coveo Solutions Inc. today released its financial results for its second quarter of fiscal 2024 ended Sept. 30, 2023. Coveo reports in United States dollars and in accordance with international financial reporting standards (IFRS).

"It continues to be an exciting time for the company," said Louis Tetu, chairman and chief executive officer of Coveo. "Since the launch of Coveo Relevance Generative Answering in the first quarter, we've seen promising results from early adopters within our existing customer base, including leading companies like Xero, as we move towards its general availability in December. Interest in our enterprise-grade generative AI offering continues to be high, and we believe we have a tremendous opportunity to capitalize on our proven, trusted and leading AI platform to deliver significant value to our enterprise customers."

Second quarter fiscal 2024 financial highlights

(All comparisons are relative with the three-month period ended Sept. 30, 2022, unless otherwise stated)

• SaaS (software-as-a-service) subscription revenue of $29.4-million compared with $25.5-million, an increase of 15 per cent.
• Total revenue was $31.2-million compared with $27.9-million, an increase of 12 per cent.
• Gross margin was 78 per cent, an increase of 2 per cent, and product gross margin was 82 per cent, consistent with last year.
• Operating loss was $10.2-million, an improvement compared with $11.6-million, and adjusted operating loss was $1.0-million, a significant improvement compared with $4.7-million.
• Net loss was $6.5-million compared with net loss of $9.9-million.
• Cash flows from operating activities were $800,000 for the quarter and $1.8-million for the first six months of fiscal 2024.
• Cash and cash equivalents were $167.8-million as of Sept. 30, 2023.
• The company completed the purchase of 3,706,194 of its subordinate voting shares (including 480,000 multiple voting shares on an as-converted basis) at $8.50 (Canadian) per share under its substantial issuer bid (the SIB) launched May 30, 2023, for an aggregate purchase price of approximately $23.8-million ($31.5-million (Canadian)). On July 17, 2023, Coveo also launched a normal course issuer bid (the NCIB, and together with the SIB, the repurchase transactions) to purchase for cancellation up to 2,559,247 subordinate voting shares of the company over the 12-month period ending on July 16, 2024. During the second quarter of fiscal 2024 ended Sept. 30, 2023, Coveo purchased for cancellation a total of 940,000 securities under the NCIB, for aggregate consideration of $6.7-million, and a total of 4,646,194 securities repurchased for aggregate consideration of approximately $30.4-million ($38.2-million (Canadian)) under the repurchase transactions during the quarter.

Second quarter fiscal 2024 business highlights

• Net expansion rate of 106 per cent as of Sept. 30, 2023. Net expansion rate was 111 per cent excluding customer attrition from customers using certain deprioritized legacy Qubit product capabilities.
• The company signed its first five order forms for Coveo's enterprise-ready Relevance Generative Answering, an extension of its AI platform that combines large language model (LLM) technology with secure indexing and AI relevance capabilities. Coveo Relevance Generative Answering is now live across Coveo's own customer self-service experiences, and Xero also became the first Coveo customer to go live with the solution for self service.
• Coveo and Caleres earned the Best Personalized Shopping Experience award at the 2023 Glossy Fashion Awards. Caleres, a global footwear company, implemented Coveo's AI platform across its branded websites, enhancing the shopping experience with AI-driven search and personalized product recommendations. This significantly improved product discovery and boosted search-driven revenues, reflecting a focus on modernizing the digital shopping experience.
• Coveo won the 2023 Cyber Security Award for Most Innovative Digital Experience Cloud-Native AI Platform. Coveo's AI platform is designed to meet strict security requirements, including HIPAA, AICPA SOC 2 Type II, and ISO27001. This award reinforces Coveo's position as a trusted provider of secure generative AI solutions for enterprises globally.
• Customers named Coveo Best Enterprise Search Vendor for the third consecutive year in SoftwareReviews' 2023 Emotional Footprint Report. The recognition reflects Coveo's excellence in customer satisfaction, with high ratings in respectfulness, efficiency, security features, productivity, client friendliness, time saving and trustworthiness.

Subsequent highlights

• Coveo announced more than 15 innovations to its platform, enhancing digital experiences across commerce, service, website and workplace applications. These advancements solidify Coveo's position as a leader and enable enterprises to excel in an ever-evolving digital landscape. These comprehensive updates comprise cutting-edge AI and generative AI models for better customer experiences and business outcomes. They expand interoperability with connectors and integrations, empower business users with modern UI frameworks, accelerate development with full-stack tools, and ensure enterprise-grade security and resiliency.
• Coveo announced early access to Coveo Relevance Generative Answering for B2B (business-to-business) and B2C (business-to-consumer) commerce enterprises, offering them an enterprise-scale generative answering solution for commerce. This innovation, part of Coveo's semantic search and AI recommendations platform, empowers customer experiences with AI-driven question-answering capabilities, fostering customer engagement and knowledge discovery in e-commerce.

Financial outlook

The company continues to demonstrate operating efficiency and is improving its guidance on annual adjusted operating loss. While the company is encouraged by the overall interest in its AI platform, the company observed delays in customer purchasing decisions, and the macroeconomic environment continues to be challenging, with both of these factors impacting new bookings and the related services revenue. Additionally, a portion of the anticipated churn from certain legacy Qubit customers occurred earlier in the year than previously expected.

In light of this, Coveo now anticipates SaaS subscription revenue, total revenue and adjusted operating loss to be in the ranges as shown in the attached table.

Following two consecutive quarters of positive cash flows from operating activities, the company is ahead of its previous commitment to achieve positive operating cash flow in its next fiscal year (fiscal 2025).

These guidance ranges, including the timing to achieve positive operating cash flow, are based on several assumptions, including the following:

• Achieving expected levels of sales of SaaS subscriptions to new and existing customers, including timing of those sales, as well as expected levels of renewals of SaaS subscriptions with existing customers.
• Achieving expected levels of implementations and other sources of professional services revenue.
• Maintaining planned levels of operating margin represented by the company's adjusted gross profit measures and adjusted gross margin measures.
• Expected financial performance as measured by the company's adjusted operating expense measures and adjusted operating expense measures.
• Stabilization of continuing headwinds, including those related to economic and geopolitical factors, impacting sales cycles, pricing and the ability to generate new business.
• The company's ability to attract and retain key personnel required to achieve its plans.
• Similar foreign exchange rates, inflation rates, interest rates, customer spending and other macroeconomic conditions.
• The company's financial outlook does not include the impact of acquisitions that may be announced or closed from time to time.

Q2 conference call and webcast information

Coveo will host a conference call today at 5 p.m. Eastern Time to discuss its financial results for its second quarter fiscal year 2024. The call will be hosted by Louis Tetu, chairman and chief executive officer, and other members of its senior leadership team.

Conference call:  on-line (link available in original news release)

Use the link in the original release to join the conference call without operator assistance. If you prefer to have operator assistance, please dial:  1-888-664-6392

Webcast replay:  Coveo website under the news and events section

About Coveo Solutions Inc.

Coveo powers the digital experiences of the world's most innovative brands serving millions of people and billions of interactions across every digital experience. After a decade of enriching the company's market-leading platform with forward-thinking global enterprises, the company knows what it takes to gain a trusted AI experience advantage.

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