Second-quarter earnings at supply chain software provider E2open were negative enough that investors heavily sold off stock Thursday after management tried to put a positive spin on the company’s outlook.
At approximately 11:15 a.m. EDT, E2open (NYSE: ETWO) stock was down about 75 cents per share to $3.32, a drop of 18.4%. It was not a 52-week low for the company; that mark was set with a price of $2.15 almost one year ago exactly at the time it was pushing its CEO out the door.
Among the key numbers that investors may have found discouraging was subscription revenue of $131.6 million in the second quarter of fiscal 2025. However, that figure was not surprising and actually came toward the high end of the guidance range of $129 million to $132 million that had been provided by the company.
But it appears to be the company’s guidance going forward that set off the drop in E2open’s stock price.
For the third quarter of fiscal 2025, subscription revenue is expected to be $130 million to $133 million. CFO Marj Armstrong said on the conference call with analysts that the figure would represent a drop of 2.1% on the low end from the prior year to an increase of 0.2% on the high end. But she also said E2open expects to have higher “booking and customer retention metrics” in the third quarter sequentially from the second quarter.
For all of fiscal 2025, E2open now expects its subscription revenue to be $526 million to $532 million, which would be a negative 2% to negative 1% growth rate. Total revenue for the company would be $607 million to $616 million, which would be a negative 4% to negative 3% rate compared to the prior year.
The continuing weak fiscal performance at E2open comes several months after it announced it was launching a “strategic review” of its future. That announcement in March followed activist investor Elliott Management’s disclosure a few days after that 52-week low a year ago that it had taken a greater-than-13% stake in the company through outright equity ownership and an options position.
On the earnings call, CEO Andrew Appel, who has been in the seat since February, said that review was “ongoing.” “Our directors are committed to a careful and thorough evaluation of the options we have available to us,” he said, adding that he would not comment further on the review.
The lagging performance of E2open led to the dismissal of Appel’s predecessor, Michael Farlekas, a year ago about the time that 52-week low was reached. Appel was named interim CEO at that time – he had been a director – before being made permanent CEO in February.
Stock higher than a year ago but well below 52-week high
After the big sell-off Thursday, E2open’s stock is about 54% higher than when Farlekas was let go. In the past year, the stock price did move above $5 in May, which is more than a doubling of where it was at its low point when Farlekas was pushed out. But many of those gains are now gone, and stocks with small outright prices are subject to percentage swings that can look enormous.
An earnings per share of a 10-cent loss was well below what SeekingAlpha said was a consensus estimate that E2open would earn 5 cents a share. Total revenue of $152.2 million was less than what SeekingAlpha said were consensus estimates of $154.8 million.
In his comments on the analyst call, Appel said the subscription business at E2open “feels like it has stabilized and is poised to improve further in the coming quarters.”
It’s taking a long time
But he also sounded a familiar theme heard before at the company: Deals are slow to get signed.
“During the second quarter, we continued to see large deals taking longer than expected to close, mainly due to extended customer timelines, which seems to be a common issue across the software sector,” Appel said, according to a transcript of the conference call. “Although we have closed a very high percentage of the deals that have been delayed in the past several quarters while losing very few, our overall pace of new subscription bookings, while moving in the right direction, is still not at the level needed to support double-digit growth.”
Earlier this month, the research team at Bank of America Merrill Lynch cut its rating on E2open to underperform from the “no rating” classification. It summed up its outlook in a subheadline in its report: “missing out on industry growth.”
Merrill has doubts
After citing the performance of such competitors as Manhattan Associates (NASDAQ: MANH), which recently has been trading at 52-week highs, the analysts at Merrill Lynch said the strategic review might be hurting E2open.
“A June 2024 Gartner report cited customer concerns on E2open’s ‘viability’ and ‘quality of service & support,’” the analysts wrote. “Competitors have also been active on M&A – with over $1bn of strategic acquisitions in 2024 alone.”
The report cited Blue Yonder’s acquisition of One Network.
On the call, Appel said One Network was a “distant competitor” in its markets. Making reference also to the MercuryGate acquisition by German software company Korber, Appel called MercuryGate a “midmarket TMS.”
“And we just don’t see those players in our competitive suite, right?” Appel said. “I think at some point we’ll probably get back to acquiring either synergistic players or capability-based players to enhance our solutions where we aspire to be number one and number two in each of our spaces.”
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