E2open, a provider of supply chain software with disastrous fourth-quarter fiscal year 2023 earnings that sent the company’s stock plunging, began to turn things around in the quarter that ended May 31.

The first quarter of the company’s 2024 fiscal year was by some measures not much better than the prior quarter or the corresponding quarter from a year earlier. Total non-GAAP revenue in Q1 FY 2024 was $160.8 million. Sequentially, it was $168.3 million in the prior quarter and just about flat a year earlier at $160.4 million. 

Non-GAAP gross profit was $110.5 million, $116.6 million and $111.3 million, respectively, for Q1 2024, Q4 2023 and Q1 2023.

Earnings before interest, taxes, depreciation and amortization, which E2open (NYSE: ETWO) believes is the best measurement of the company’s financial strength, came in at $53.8 million in the quarter that ended May 31. Three months earlier, that number was $61.2 million and a year ago it was $51.4 million.

In an earnings call with analysts Monday, E2open CEO Michael Farlekas was mostly upbeat about the quarter after three months earlier having been more pessimistic and unusual in his bluntness about the challenges facing the company.

Farlekas’ first focus during the call was on the company’s subscription revenue, which came in at $134.9 million, up from $129.5 million a year earlier. However, that number was down from the $136.9 million posted in the final quarter of fiscal 2023. Farlekas described the performance of subscription sales as “solid.” 

On the call, CFO Marje Armstrong said the subscription revenue was on the high end of the company’s guidance, propelled by “the timing of large deals that closed earlier than expected during the quarter.”

But Farekas said the 4% growth year on year is “below our potential.” The macroeconomic outlook impacting supply chain software sales, he said, is “not deteriorating. It’s more on the stabilizing side than deteriorating at this point.”

In the earnings call for the fourth quarter of fiscal 2023, Farlekas said customers were cautious and slow to close deals. He returned to that theme in this week’s earnings call but said things were getting better. 

“Clients continue to scrutinize their spend on long-range strategic projects due to the current macroenvironment,” Farlekas said, adding that E2open was able to close “several deals” that had been held up in fiscal 2023. 

But the caution remains, according to Farekas. “The overall macro trends have remained similar to the second half of ’23. It is still taking longer to close new deals.

“I still think big companies are very judicious about writing long-term commitments for large ticket items overall,” he said. “So they’re not rushing to do the things to get approved through multiple steps. I don’t think that really has changed.” 

Armstrong, answering another analyst’s question, said the company’s “churn” is weighted toward the first half of the year, with subscriptions expiring, and that “we expect the second half for the subscription business to be better.”

Farlekas reiterated that E2open’s strategy has shifted away from heavy reliance on acquisitions for its growth, such as the $1.7 billion purchase of BluJay in 2021 and the smaller purchase of Logistyx Technologies last year, and toward becoming a company “that can drive rapid and sustainable organic growth at scale.”

He cited management changes made at E2open last year that have now been supplemented by the hiring of the company’s first chief commercial officer. In conjunction with its earnings report, the company announced that Greg Randolph would fill that role. Randolph has had stints at Quest Software and CA Technologies.

During the call, Farlekas said the appointment of the first CCO in the company’s history was in line with the transition toward a strategy of organic growth as the primary engine rather than “the idea of scaling rapidly.”

In the past, Farlekas said, “we kind of centered our attention on operations as that was the necessary requirement for that part of our growth strategy, and our COO, and it was titled that way because it was operationally oriented.”

But with the shift in strategy, Farlekas said E2open is “kind of getting to the place where we want to be in that we really need to have an organic sales-driven leader that has grown up in that part of the world.” 

And beyond the strategy to shift more toward organic growth and away from acquisitions, Farlekas said there also is the issue of the price of potential targets, which he said was high.

“There’s going to be a time when all these smaller companies come to market,” he said. “I think price expectations are still pretty high. So I think now is a great time for us to build an organic sales engine.”

The May 2 plunge in the company’s stock price brought it down to a 52-week low of $3.92. At approximately 11:40 a.m. EDT Tuesday, E2open was trading at $5.40 per share but had moved little over the course of the day, suggesting investors did not have a strong reaction to the company’s earnings.

E2open reiterated its earlier guidance for the fiscal year. Adjusted EBITDA for fiscal 2024 is expected to come in the range of $218 million to $228 million. For fiscal 2023, that figure was $217.1 million. 

Farlekas identified one of the large customers it signed a deal with by name: Ford (NYSE: F). He said it was a “large project that builds on E2open’s prior success and strength in the automotive industry transformation.”

Asked by an analyst for details on the transaction, Farlekas said he appreciated that Ford would allow E2open to mention it by name on the call but that he could not provide further information.

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