Coveo Solutions Inc. (CVO:CA) Q2 2026 Earnings Call Transcript
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Overview
The earnings call presents a mixed sentiment. Positive aspects include strong generative AI revenue growth and successful commerce bookings. However, the renegotiated Salesforce contract and negative cash flow are concerns. The Q&A reveals some uncertainties, such as delayed deals and the impact of the Salesforce contract on guidance. Overall, these factors balance each other, leading to a neutral sentiment. Without market cap data, the stock's reaction is uncertain, but the mixed signals suggest limited short-term movement.
Key Financial Performance
SaaS subscription revenue $35.9 million, grew 15% year-over-year. Growth driven by continued momentum of generative AI solutions, commerce use cases, and expansion within the base.
Coveo Core Platform revenue $35.0 million, up 17% year-over-year. Represented the highest growth rate in nearly 5 quarters.
Qubit Platform revenue $0.9 million, down 24% year-over-year. Expected to fully churn by the end of the fiscal year.
Total revenue $37.3 million, up 14% year-over-year.
Net Expansion Rate (NER) for Coveo Core 105%, down from 108% last quarter but up from 104% a year ago. Decline due to a renegotiated customer contract with Salesforce, representing approximately 3% of ARR.
Adjusted EBITDA $0.6 million, slightly ahead of guidance range, compared to $1.5 million a year ago.
Cash flow from operating activities Negative $10.8 million, compared to positive $1.4 million last year. Decline due to timing of working capital.
Generative AI solutions revenue growth Approximately 150% year-over-year. Near perfect retention rates with NER of more than 150%.
Commerce use case new business bookings One of the best quarters ever, driven by ongoing successful partnership with SAP.
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Operating Highlights
Generative AI solutions: Represented more than 35% of new business bookings this quarter, reflecting continued strong momentum. Customers like Halliburton, Deckers Outdoors, and Intermountain Healthcare adopted these solutions. Existing customers such as NVIDIA, Intel, and GE expanded their investments in these solutions.
Commerce segment: Fastest-growing segment, driving nearly 50% of new business bookings this quarter. Customer wins included HORNBACH, Solar, and Carlton One. SAP partnership influenced 50% of commerce bookings.
Agentic and generative AI: Coveo's platform powers search with relevant content, enabling agentic and generative AI solutions that deliver tangible business outcomes. Examples include SAP's deployment, which saved over EUR 100 million annually.
Commerce growth: Commerce remains the fastest-growing segment, benefiting from multiple tailwinds such as leadership in B2B commerce and convergence of commerce and knowledge into a single integrated capability.
SAP partnership: Continues to show momentum, influencing 50% of commerce bookings. SAP's deployment of Coveo saved over EUR 100 million annually.
Revenue growth: Subscription revenue for the Coveo Core Platform accelerated to 17%, the highest growth rate in nearly 5 quarters. Adjusted EBITDA was above guidance at $0.6 million.
Customer retention: Generative AI solutions maintained near-perfect retention rates with NER over 150%. Excluding Salesforce, churn was the lowest in 7 quarters.
Operational adjustments: Proactive targeted investment adjustments within the go-to-market organization to align resources with high-return opportunities.
Strategic partnerships: Salesforce remains a customer and strategic partner despite a renegotiated contract. Coveo's solutions are becoming more strategic for customers, requiring additional stakeholder approvals.
Market positioning: Coveo is positioned as a leader in AI-powered search and commerce solutions, with a focus on delivering measurable ROI and addressing enterprise data complexities.
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Risk or Challenges
Renegotiated Salesforce Contract: The renegotiated contract with Salesforce resulted in a 3% reduction in ARR growth rates and net expansion rate (NER). This was due to Salesforce's internal mandate to use its own Data Cloud, which is an isolated event but impacts revenue growth.
Delayed Deal Closures: Some deals forecasted to close in Q2 were delayed to Q3 and beyond, requiring additional stakeholder approvals. This delay impacts short-term revenue and bookings.
Qubit Platform Revenue Decline: Revenue from the Qubit Platform declined by 24% year-over-year and is expected to fully churn by the end of the fiscal year, negatively impacting overall revenue.
Customer-Specific Churn: Excluding Salesforce, churn was the lowest in 7 quarters, but the Salesforce contract renegotiation highlights potential risks with large, strategic customers.
Economic Uncertainty in Deal Approvals: Deals requiring more stakeholder approvals indicate potential economic uncertainty or increased scrutiny in customer spending, which could slow down revenue realization.
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Guidance & Outlook
SaaS subscription revenue for Q3 FY2026: Expected to be between $35.7 million to $36.2 million.
Total revenue for Q3 FY2026: Expected to be between $37.1 million and $37.6 million.
SaaS subscription revenue for FY2026: Expected to be between $141.5 million to $142.5 million, adjusted from $141.5 million to $144.5 million.
Total revenue for FY2026: Expected to be between $147.5 million to $148.5 million, adjusted from $147.5 million to $150.5 million.
ARR growth by end of FY2026: Expected to be roughly mid-teens.
Adjusted EBITDA for Q3 FY2026 and FY2026: Expected to be approximately breakeven for both periods.
Operating cash flow for FY2026: Expected to be positive, adjusted from approximately $10 million due to renegotiated customer contract and other factors.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What are the plans to shift to a consumption-based pricing model to potentially create a revenue lift?
A:Louis Tetu explained that their solutions are already on a consumption-based pricing model. He highlighted that as they accumulate proof points of the value they provide, such as SAP's $100 million savings and reduction of 1.6 million cases annually, they gain price power for their solutions.
Q:Can you clarify the divide between internal IP and external IP in AI usage?
A:Laurent Simoneau stated that they are an AI platform company with multiple internally built and maintained models targeted towards relevance. They also use external large language models when required, emphasizing interoperability and pragmatism to leverage the best solutions for their customers.
Q:Are there common themes in delayed deals, such as verticals, geographies, or use cases?
A:Louis Tetu noted no specific vertical themes but mentioned that as they become more strategic to customers, deals tend to involve larger transaction sizes and require additional stakeholder approvals, leading to longer sales cycles. These deals remain in the pipeline.
Q:Are delayed deals primarily impacting expansion deals or new logos?
A:Louis Tetu clarified that while delays are seen in both expansion deals and new logos, they are more prominent in expansion deals as customers see the value and expand beyond initial proof-of-concept agreements.
Q:Are there plans to backfill the COO role?
A:Laurent Simoneau confirmed that they have a strong leadership team managing operations and plan to fill the COO role in the coming months.
Q:What drove the change in the relationship with Salesforce?
A:Laurent Simoneau explained that Salesforce's decision to use internally developed software was a commercial imperative to run Salesforce on Salesforce. He emphasized that this is an isolated event, and their partnership with Salesforce remains unaffected.
Q:Did the AWS outage in October impact the business?
A:Laurent Simoneau stated that there was no downtime for critical functions like search and queries due to their resilient platform architecture, which ensures continuity during rare events like the AWS outage.
Q:When did the Salesforce contract renewal occur, and how did it impact guidance?
A:Brandon Nussey stated that the renewal occurred on September 30, late in the quarter. The $2 million reduction in the high-end guidance range was primarily due to this event, but the company remains within its guided range.
Q:Will the revenue impact from Salesforce affect growth investments?
A:Brandon Nussey clarified that while they are optimizing costs, the revenue impact will not significantly affect their growth investments, which are aimed at driving acceleration.
Q:What is the opportunity in the B2B commerce market compared to B2C?
A:Laurent Simoneau highlighted the unique scale of B2B customers, including catalog size and entitlements like pricing and product availability. He noted the convergence of commerce and knowledge functions as an exciting opportunity, positioning them uniquely in the market.
Q:What has changed in customer conversations for new deals, and how is the sales team performing?
A:Laurent Simoneau noted that deals are becoming larger and more complex, sometimes taking longer to close. Brandon Nussey added that while there is progress in sales efficiency, there is still work to be done in some areas.
Q:What is the update on the SAP relationship and their agentic AI strategy with Joule?
A:Laurent Simoneau explained that SAP is a key customer and partner. Coveo plays a pivotal role in SAP's Joule strategy by providing consistent, relevant content for both the SAP for Me portal and Joule interaction points, ensuring a seamless customer experience.
Q:Review of Unclear Management Responses
A:Management appeared to avoid directly addressing the specifics of how much of the $2 million reduction in guidance was due to Salesforce versus adjustments in booking assumptions. Additionally, while they mentioned optimizing costs, they did not provide detailed clarity on the specific areas of cost optimization or the exact impact on growth investments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
BB
Capital Markets
Cardinal Health
Financial
Illumio
Inc Research
Laurent
Research Division
SAP
Salesforce
agent
booking
brand
capability
case
commerce
complexity
content
customer
enterprise
example
expansion
experience
industry
investment
knowledge
model
momentum
others
power
problem
rate
relevance precision
scale
section
service
solution
source
story
technology
world
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Coveo Solutions Inc. (CVO:CA) Q2 2026 Earnings Call Transcript
Unknown10-30
The earnings call presents a mixed sentiment. Positive aspects include strong generative AI revenue growth and successful commerce bookings. However, the renegotiated Salesforce contract and negative cash flow are concerns. The Q&A reveals some uncertainties, such as delayed deals and the impact of the Salesforce contract on guidance. Overall, these factors balance each other, leading to a neutral sentiment. Without market cap data, the stock's reaction is uncertain, but the mixed signals suggest limited short-term movement.
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Unknown10-30
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INMB Slides
INMB Report
Frequently Asked Questions
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