Coveo Solutions (TSX:CVO) Q2 2027 Earnings Call

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4:04 www.adhirkadve.com Ladies and gentlemen, welcome to the Coveo Second Quarter Fiscal 2027 Financial Results Conference Call. At this time, all lines are in listen-only mode.

5:08 Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, October 29, 2026. I would now like to turn the conference over to Adhir Kadve, Head of Investor Relations. Please go ahead. Good afternoon, everyone, and thank you for joining us. With me to discuss Coveo's second quarter fiscal 2027 results are Laurent Simoneau, Coveo's co-founder and Chief Executive Officer, Louis Tetu, Coveo's Executive Chairman, and Karine Hamel, Coveo's Chief Financial Officer. A reminder that some remarks made today will be forward-looking statements within the meeting of applicable securities laws, including those regarding our plans, objectives, expected performance, and our outlook for the fiscal third quarter and full year fiscal 2027.

6:05 These are forward-looking statements given as of October 29th, 2026, and while we believe any statements we make are reasonable, They are based on current expectations and assumptions which are subject to risks and uncertainties. Actual results could differ materially from those expressed or implied. Coveo disclaims any intent or obligation to update our forward-looking statements, whether as a result of new information, future events, or otherwise. Further information on factors that could affect the company's financial results is included in filings we make with Canadian securities regulators. including in the risk factors section of the company's most recently filed annual information form as well as the key factors affecting our performance section of the company's most recently filed MD&A. Both of which are available on our CDARplus profile at cdarplus.ca and on ir.coveo.com.

6:58 Additionally, some of the financial measures and ratios discussed on this call are either non-IFRS measures, ratios, or operating metrics used in our industry. A discussion on why we use these metrics and where applicable reconciliation schedules showing IFRS versus non-IFRS results are available in our press release and our MD&A issue today. Finally, please note that unless otherwise stated, all references and financial figures made today are in U.S. dollars. Our presentation slides accompanying this conference call can be accessed on our IR website under the financial information section. I will now turn the call over to Louis to review our platform and strategy followed by Laurent taking us through our operational and strategic highlights of our second quarter and we will end off with Kevin taking us through the financial details and provide our outlook for the third quarter and full year fiscal 2027.

7:50 We will then open the line to your questions. With that, over to you Louis.

7:56 Good afternoon everyone and thanks for joining us. We delivered the strongest booking quarter in our history In what is usually our seasonally slowest quarter, both revenue and adjusted EBITDA came in above our guidance range. We continue to see marquee customer transactions with two seven-figure subscriptions in the quarter. The acquisition of Anglera is a key event we're excited about. First, it's an important technology that helps us further advance our platform in the data layer, but also, Anglera brings substantial incremental value to our customers and enhances our solutions portfolio in industrial, distribution, and complex retail, our strategic target segments.

8:42 We remain focused on deepening our strategic relationships with the largest organizations in the world and ensuring that our technology remains a key ingredient in our customers' ambitious AI strategies. Laurent and Karine will go into the details but in my view, this quarter once again reflects strong progress on all these fronts as our market matures. The addressable market for Coveo is very large and reaching an important inflection point. Our category is Experience AI, how AI is brought into every digital experience to produce better business outcomes for enterprises. Experience AI is about bringing AI to every moment of intent.

9:30 Connecting what someone wants to accomplish with the information, products, and guidance that they need. Fast, modern, conversational, and with personalized relevance. The opportunity goes far beyond chatbots. It spans commerce, service, and work. It is much bigger than an isolated application or one department's AI tool. Enterprises interact with customers, partners, technicians, buyers, and employees online, sometimes a million times a week or even a day. These people need to find products, solve problems, learn, fix equipment, or choose replacement parts. Every interaction is an opportunity to resolve issues faster, grow revenue, improve productivity, or reduce costs.

10:23 AI makes these improvements possible at scale. Think about your own experience with ChatGPT, Perplexity or Claude. These tools change how you find information, and so they also change what you expect from all your digital interactions. When one company helps customers buy confidently or technicians solve problems faster, slower alternatives become harder to accept. Rising expectations from people online Proven possibilities and competitive pressure are creating this market and its urgency. We focus primarily on industrial, B2B, distribution, complex retail, and large-scale service. This is where Coveo has strong differentiation and delivers high economics.

11:15 These are markets where product catalogs, technical knowledge, and business rules must work together and where ROI can be substantial. We already serve some of the largest manufacturers, distributors, and retailers in the world. Consider a buyer on an industrial distributor's website. Instead of searching thousands of parts, the buyer describes the problem context. Poveo AI brings together specifications, compatible products, and insights from other customers' experiences. It also incorporates inventory and negotiated pricing to guide the purchase. The result is more completed orders Thank you for joining us. from availability to the installation.

12:29 Commerce and service become one experience focused on getting the machine working again. The technician gets a better experience and a faster resolution. The technician's customer reduces downtime. The manufacturer gains a competitive advantage by increasing dependability. The economics are powerful. Enterprises already have the traffic, the data, and knowledge, and the demand. It's all there. Coveo helps them get higher value from those assets and quickly. For illustration, consider a business with $500 million in annual digital sales for aftermarket parts. Each 1% increase in revenue per visit would add $5 million in revenue at unchanged traffic.

13:18 But that is before any service savings and the benefits from a greater dependability promise. We often see double-digit gains with our customers, tens of millions of dollars. We believe enterprises face an increasingly binary choice, use AI to deliver better experiences or compete against companies that do. That pressure, combined with evident and measurable financial returns, creates a catalyst for the rapid adoption of Coveo within enterprise experiences. But here's the critical point. An AI model does not inherently know your products, projects, customer contracts, or business rules.

14:04 It cannot guess which part fits in a particular machine serial number, its maintenance history, or what a customer can buy on what terms. That knowledge sits across disconnected enterprise systems. The role of models in this type of use case? To generate. Enterprises must supply the context, otherwise AI models can't deliver reliable results. Coveo is that harness that makes AI relevant, trustworthy, and useful. It securely supplies the current business context digital agents need. With that harness in place, and as models become commoditized, Covio's model flexibility lets enterprises keep pace with innovation, improve performance, and optimize token costs without model lock-in.

14:55 Experience AI therefore goes beyond individual interactions and span across the full spectrum of intents. From discovery to purchase, to ownership and aftermarket support, Covio connects intelligence across the entire journey. Enterprises can start with one commerce or service experience. They can demonstrate value, then expand and extend the same intelligence across all channels. In Experience AI, each interaction, intent, and outcome provides signals that help improve the next experience. The value compounds as Coveo AI learns, without the need for a separate AI project for every touchpoint. and there is no need to replace the existing technology stack.

15:48 Veo's moat is the complete solution. We combine unique technology, enterprise integrations, industry expertise and repeated customer results. It's not an isolated feature or a single AI model. This is why we believe the so-called SaaSpocalypse narrative is overdone. Pranshur AI technology is not the same as complete solutions delivering trusted enterprise outcomes. Our customers need that complete solution, backed by technology, know-how, and a results promise. We see AI innovation expanding the need for what Coveo does, not making it obsolete. And these customers gain more than software.

16:34 They gain faster time to value, and confidence in a partner that delivers results repeatedly and keeps innovating. For Coveo, this expands the opportunity beyond technology budgets. It opens the door to strategic partnerships with our customers and the C-suite to improve revenue, service and competitiveness. This is why we're seeing seven-figure subscriptions. We grow by winning larger customers serving more interactions within existing accounts and learning larger partnerships through measurable value and strategic business impact. We turn the interactions enterprises already have into the financial outcomes thereafter with AI.

17:20 And we're aiming to translate that value into accelerating growth for our company. We believe Coveo will become the defining company in the experience AI space. With that, I'll turn it over to Laurent to discuss the quarter.

17:38 Thank you, Louis. We delivered a very strong quarter with the best bookings performance in our history. Growth was driven by B2B and B2C commerce, generative AI, and multi-use case customers. Today, I want to focus on three themes that continue to drive our business. Deepening customer relationships, leading through innovation and continue our focus on maintaining strong economics for the business. Let me begin with customers. We have now delivered four consecutive quarters with seven figure transactions, including two this quarter. These significant enterprise commitments reflect the strategic role Coveo is playing as organizations put AI into production.

18:26 New customer wins and expansions included Kohl's, US Foods, LG, Intel, a global commercial equipment parts distributor, a North American industrial gases and equipment supplier, and several others. The first major transaction was the previously announced expansion with a global Fortune 500 technology leader. This represents the largest transaction in Coveo's history. It is also our first customer relationship exceeding 10 million in annual recurring revenue. This is an important milestone. It demonstrates that one of the world's most sophisticated technology companies considers Coveo's strategic part of its enterprise AI strategy.

19:14 That company is also expanding the use of our platform across multiple experiences. The second was a seven-figure win with Kohl's, one of Australia's leading retailers. Kohl's operates more than 840 supermarkets and generates nearly 42 billion Australian dollars in revenue. E-commerce is a strategic growth priority for Kohl's and its supermarket business. Supermarket commerce presents unique challenges. Product availability changes rapidly, Perishable products have limited shelf lives and competition is intense. At the same time, customers expect to find the right product easily, whether searching for something specific or exploring options. Cold Selected Covail to power search across its online properties.

20:05 Our platform will improve the shopping experience through personalization, intelligent ranking, and search optimization while preserving the merchandising controls its teams require. The objective is to improve conversion, average order value, and revenue per visit. Ultimately, this should support stronger margins for calls. This win also establishes a foundation for gentic commerce, where AI agents will increasingly help shoppers discover and purchase products. Importantly, this was a competitive win against established vendors. It demonstrates the strength of our platform in a demanding, high-scale commerce environment. Turning to innovation, we continue investing in capabilities that address real customer needs and extend Coveo's value across the commerce journey.

21:00 We are doubling down on our strategic commerce business with a particular focus on retailers, distributors, and manufacturers. At the same time, we continue investing in our business serving sophisticated, knowledge-intensive industries where AI is creating new opportunities to deliver value to our customers. Conversational product discovery brings natural language interactions directly into commerce experiences. Shoppers can ask questions and refine their needs through conversation. The experience adapts to their intent, presenting product cards, comparisons, detailed analysis, or personalized suggestions. All responses are grounded in the product catalog and respect established merchandising rules.

21:49 Through interoperability protocols such as MCP and AGUI, our underlying agents can also enrich experiences with external AI assistance, including ChatGPT, Gemini, Claude, and others. Conversational product discovery is already live at Linde, a global leader in industrial gases and engineering. Linda supplies specialized gas and equipment to industries ranging from manufacturing and healthcare to food processing and electronics. For Linda's customers, choosing the right products requires understanding complex technical specifications, compatibility, and application requirements. Conversational product discovery helps them navigate these complexities and make more informed purchasing decisions.

22:40 We're seeing strong market interest in a healthy pipeline of expansion opportunities. Several additional customers are currently onboarding and their capabilities also attracting new prospects. Another important innovation is merchandising agent, formerly merchandising co-pilot. This represents a strategic evolution of our commerce platform, bringing AI directly into how our customers manage and optimize their digital businesses. Embedded in Coheo Merchandising Hub, the agent allows business teams to analyze performance, identify opportunities, and optimize campaigns through natural language. It can recommend and execute changes to business rules, facets, and product recommendations without requiring specialized operational expertise.

23:34 Crucially, customers retain control over relevance and merchandising decisions. Actions are governed by guardrails, approval workflows, and a full audit trail. This combines the speed and intelligence of AI agents with the control enterprises require. Early engagement metrics are promising. More than 70% of users engage with the product repeatedly. Approximately half of those users apply actions recommended by the assistant. More than 20% of storefront optimizations are now completed through automated AI agent actions. We expect these metrics to improve as adoption matures.

24:19 These early results demonstrate how agentic AI can help teams move more quickly from insight to action while preserving human oversight. Our forward-deployed engineering initiative is also progressing well. As of today, the team is approaching full scale and completed more than 40 customer engagements. This model brings our technical teams closer to customers and their real-world deployments. It helps us better understand their needs and solve problems faster. We are already seeing positive contributions to customer retention and expansion. The initiative also creates a tighter feedback loop between customer needs and our product roadmap.

25:07 Finally, I want to discuss our acquisition of Englera, which strengthens our commerce offerings. For retailers, distributors, and manufacturers, product data is critical to helping customers find the right product. This is true for both traditional search and AI assistance. Yet essential attributes such as dimensions, materials, and compatibility are often missing from catalogs. This limits product discoverability and relevance across all discovery channels. Englera addresses this challenge by using AI to enrich existing catalogs at enterprise scale, extracting information from unstructured product content. Englera's technology is highly complementary to Coveo.

25:55 Englera improves the underlying product data, while Coveo makes that information accessible through intelligent search, recommendations, and conversational experiences. Strategically, this acquisition strengthens our differentiation across B2B and B2C commerce. It improves the foundation for relevance, personalization, and merchandising. It also supports answer engine optimization, AEO, and generative engine optimization, GEO, helping customers make their products more discoverable through search engines and AI assistance. This further positions Caveo for the shift toward agentic commerce.

26:41 We're excited about the opportunities ahead, and I want to personally welcome the Englera team to Caveo. We look forward to what we will accomplish together. Our third theme is to continue our focus on maintaining strong economics for the business. Our subscription-based model provides high recurring revenue and strong gross margins. creating significant operating leverage. We remain deliberate about where we invest. We prioritize product innovation customer initiatives that reinforce our differentiation and support expansion while maintaining financial discipline across the business. This approach is reflected in our adjusted EBITDA performance, which exceeded our guidance to score.

27:30 To conclude, the progress we're making reinforces our confidence in Covell's long-term opportunity. We're building larger and more strategic customer relationships. Adoption of our latest innovations is growing, and we're bringing product development even closer to our customers' needs. We remain focused on solving complex problems at enterprise scale, delivering measurable customer value while building a more differentiated and efficient business. I'm proud of our team's execution this quarter and the momentum we are building. With that, I'll turn it over to Karine to work through our financial results. Karine?

28:11 Thank you, Laurent. Q2 was a strong quarter from a bookings perspective, as you've heard from us. We saw continued strength in commerce and generative AI, and again, closed large strategic transactions. These results reflect the value both new and existing customers see in Coveo as they advance their AI priorities. Importantly, even excluding our largest transaction, we delivered our best Q2 bookings performance in what is typically a seasonally slower quarter. Both SaaS subscription revenue and total revenue came in slightly above our guided range. above our expectations while continuing to deliberately invest in the areas with the strongest long-term potential.

29:05 Before diving into booking, let me start with our financial results. With Qubit now fully deprecated, our SaaS subscription revenue reflects only the Coveo core platform. On that basis, SaaS subscription revenue was 39.1 million and up 12% year-over-year. or up 9% on a reported basis. Total revenue was $40.4 million, growing 8% year-over-year. Product gross margin was 82% and total gross margin was 80%, both solid and comparable to prior year period. Adjusted EBITDA was $2 million, compared with $0.6 million a year ago, above our guided range. Cash flow from operating activities was negative at 14.9 million, reflecting the seasonality of our cash collection cycle and the timing of working capital movements.

30:03 We ended the quarter with 82.7 million in cash and cash equivalents and remained debt-free after funding share repurchases and managing the seasonal cash flow pattern. Net expansion rate on the CoveoCore platform was 105%, up three percentage points from last quarter. Turning to booking. As I said last quarter, generative AI is now part of virtually every customer conversation. Customers are moving from experimentation towards production use, and they are looking for secure, relevant experiences that can deliver measurable value. Coveo helps them connect their enterprise content and product data to those AI experiences.

30:52 We continue to see that value reflected in customer demand. Generative AI solutions now represent 16% of our AR. This is incremental AR on top of customer score Coveo subscription and has grown consistently over time. In the second quarter alone, these solutions accounted for more than 50% of our bookings, underscoring their importance as a driver of new business. We see this incremental value reflected in higher annual contract values among new customers adopting these solutions and strong net expansion rates among existing customers using them. As we discussed last quarter, broader adoption across new capabilities can also increase platform consumption, creating further opportunities for expansion over time.

31:48 We also continue to see momentum in our strategic cohort, including wins across B2B and B2C commerce. Among our new B2B customers this quarter were a commercial equipment parts distributor and an industrial gases and equipment supplier, extending our traction in distribution and industrial markets. and Complex B2C calls as another notable example, selecting Coveo to support its complex experience. These wins illustrate the momentum we are seeing and continue to validate our strategy of focusing on verticals where commerce complexity creates a compelling need for Coveo's capabilities. Turning to Net Expansion.

32:35 Net expansion rate for the CoveoCore platform improved three percentage points sequentially to 105%, while our reported rate, including legacy Qubit customers, was 102%. As a reminder, Qubit no longer contributes to current revenue. However, its historical customer base continues to affect the reported NER comparison. The three points improvement reflects customer expansion, including the large transaction announced shortly after Q1 as well as the benefit of lapping the large single customer churn event we discussed last year. We are pleased by this progress while recognizing that the timing and size of customer expansions and renewals can affect NER from quarter to quarter.

33:24 While legacy cohorts continue to wait on overall retention, our strategy cohorts, including customers using commerce, gen AI, and multiple use cases, continue to deliver stronger AR growth and NER than our overall business. These results reinforce our focus on the areas where we see the greatest opportunity, both to win new customers and to expand existing ones. Turning to Anglera, the acquisition Laurent discussed earlier. Revenue contribution for this fiscal year will be immaterial, and the longer-term opportunity comes from the technology and expertise it adds for product offering. The agreement also includes an earn-out tied out to commercial milestones, linking additional consideration to the business generated by these capabilities.

34:19 This structure allows us to make a modest upfront investment with a further potential payment in early 2028 tied to commercial performance. The acquisition will be funded with cash on hand. During the quarter, we bought back shares through both the previously announced targeted issuer bid transaction with a pre-IPO shareholder and through our NCIB program, reflecting the ongoing confidence we have in our business and the opportunity ahead. Our capital allocation priorities remain grounded in maintaining a strong debt-free balance sheet. That flexibility allows us to keep investing in product innovation and customer success, opportunistically buy back shares and selectively invest in opportunities that advance our strategy.

35:13 Finally, I will wrap with our guidance. We expect Q3 SaaS subscription revenue to be between 39.7 and 40.2 million, representing approximately 11 to 12% growth for the Goveo core platform. Total revenue to be between 40.6 and 41.1 million. And Q3 adjusted EBITDA to be between one and two million. For the full year, We are raising the lower end of our SaaS subscription revenue outlook, bringing the range to 156 to 158 million, or approximately 12 to 13% growth for the CoveoCore platform. We are also narrowing our total revenue outlook to 160 to 162 million.

35:59 This revised outlook reflects a higher floor for SaaS subscription revenue and lower expected professional services revenue, as we voluntarily shift more implementation work toward key SI partners as part of our broader alliances strategy. Our adjusted EBITDA and operating cash flow expectations remain unchanged. We continue to expect adjusted EBITDA of between two and seven million, and we continue to expect more than 10 million in operating cash flow for the year, consistent with seasonal pattern of our cash collection which have historically been concentrated in the second half of the year. In summary, we delivered record booking, results above guidance, and raised the floor of our SaaS subscription revenue outlook.

36:48 We are building larger, more strategic customer relationships and remain focused on translating that progress into sustainable growth through discipline execution and thoughtful investments. who are pleased with our progress this quarter and are confident in the long-term opportunity ahead. With that, operator, please open the line for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. As a reminder, please limit your questions to one and one follow-up only.

37:40 One moment, please, for your first question. And your first question comes from the line of Panas Moushopoulos with BMO Capital Markets. Your line is now open. Hi, good afternoon. Starting off on Angora, can you provide some context on how they came onto your radar and how the acquisition came about? And then as far as monetization, will that be a separate product with an add-on, or is that going to be folded into the broader platform and just drive overall value in terms of the grant capability for the platform? Thank

38:19 you. Hey, Thanos. Thank you for your question. First of all, we closed that today, so we expect to discuss more integration in the coming weeks and months. But as of today, this product works already with customers in production, and we can sell that today. It solves a real important problem, the product data problems. It automates the enrichment that a lot of customers are struggling today to do manually. So it fixes incorrect product data, inconsistent product data, and ultimately it creates a lot of value in the form of additional conversion, revenue per visit, margin, et cetera. and I would also add that ultimately it's a great way also to manage GEO and AEO that are components of agentic commerce.

39:27 So the ability to surface content to those external AI assistants in the context of commerce is a growing priority for customers and retail especially and we believe that this acquisition will provide a lot of value here. Great. And then just on the FDE strategy, you talked about the prepared remarks, maybe some more color in terms of the types of opportunities where that's driving success and what your plans are in terms of continuing to scale and build the team, kind of maybe just the magnitude of investment you're planning to make in that regard. Thanks.

40:07 Yes, absolutely. Thank you for that question, too. So we're quite happy about the early results of this FDE initiative. It has an impact on the retention of customers. It has an impact on expansion. And basically, this new world of AI, we see a lot more of architecture and interoperability challenges and opportunities at the same time with customers. So these FDs discovered, those opportunities help to reduce challenges and ultimately we see them influencing great outcomes.

40:53 The team is getting to maturity in terms of headcount, but depending on the opportunities in the future that we see, we obviously have the option to increase the growth of that team.

41:10 Great, Donald. That's fine. Thank you. Your next question comes from the line of Paul Treiber with RBC Capital Markets. Your line is now open.

41:23 Thanks very much. Good afternoon. A question on guidance. It's nice to see the very strong bookings this quarter, but my understanding is that guidance didn't reflect full upside from some of these larger deals. So can you speak to what's reflected in guidance from here going forward in terms of new wins versus contribution from ones that have already closed?

41:49 Thank you, Paul, for your question. Yes, as you noted, we increased the lower end of our SAS revenue outlook by $2 million, and that is the reflection of the visibility we have following Q2 and H1. Our outlook reflects the renewal dynamics across our customer base as well as the timing of the remaining opportunities. And as a reminder, we recognize revenue on a straight line basis, so as we get further along in the fiscal year, the gap revenue contribution is not as impactful as we get further along in the fiscal year. We believe the revised range reflects the information we have available today and we're pretty pleased with the results so far.

42:36 Looking forward in terms of the sales pipeline, sales efficiency, close rates, things like that, with the strong bookings over the last several quarters, I assume you're seeing an improvement in all those metrics. Are you planning or do you expect to increase sales investments through this year to drive stronger growth in the back half and end 28?

43:05 Well, this is Laurent. So, look, we continue to see opportunities in the industries that we are focusing our investment on. So, industrial, distribution, complex retail. So, we... We are going to invest in a robust fashion to acquire these new customers, but also to expand the existing customers. I mean, I discussed the FD initiative earlier on. The FD initiative also discovers some opportunities at our large existing customers. So we're going to continue investing in there. but in a disciplined fashion. In other words, we're going to double down on what works and monitor and reassess and fix what works, what doesn't work as well. Let's put it this way.

44:04 Thanks for taking the questions. Your next question comes from the line of Doug Taylor with National Bank Capital Markets. Your line is now open.

44:16 Yeah, thank you. Good evening. I'm going to ask another question on the bookings growth versus the revenue growth. Notice the CRPO is up 15% year over year, which would seem to bake in more contribution from some of these recent bookings than what's flowing into revenue. So I guess I'd like to start by asking about the ramp up. and the cadence of some of these recent larger wins and maybe you can refresh us on the status of those and how you expect that to unfold.

44:52 Thank you, Doug, for your question. Maybe I can remind everybody here that, you know, when we report e-booking per se, it's because we are ready to recognize the revenue on such bookings. Sometimes in the past, for sure, That might not contribute much, but in the future, going forward, we're expecting to get the revenue recognition from those bookings. As you highlighted, indeed, CRPO was growing at a higher rate than GAAP revenue, but as we've always said on CRPO, Doug, I mean, you know it's very highly dependent of renewal timing and seasonality of so on so you know I'm always you know careful on that metric which is not always reflecting you know the growth on the revenue side.

45:43 Fair enough. As my next question, anything Thank you all for joining us today.

46:14 I don't have anything specific to point out. I'm guessing you're referring to some of the information we're providing the financial statement with regards to geographical revenue per region. Is that right? I think we're pretty comfortable with the growth we're seeing across different markets and always gap revenue always show a bit of a lagging here.

46:47 Okay, thank you. I'll pass the line. Your next question comes from the line of David Kwon with TD Cohen. Your line is now open.

46:58 Hi. Just getting back to the guidance, I guess when you look at the Q3 guidance and then the updated full year guidance, it seems to imply that the Q4 kind of SAS subscription growth slightly up from what we're seeing in H1 And despite, you know, there's no kind of tough comp as it relates to Salesforce, we've talked about kind of strong booking. So I'm just wondering, why are you just being more conservative, you know, given what's going on in the world these days? Or are you seeing kind of still the higher churn that you might want to see maybe at the bottom end of the customer base? Just curious to get your thoughts on that.

47:40 Thank you for your question, David. I think you've been following us for a little while, so I hope you see us guiding responsibly and to the best of our knowledge every time. With regards to what you're alluding to in Q4, I think your math is right here. And don't forget that the model of this company is revenue contribution, generally bookings contribution on H2. is generally stronger than in H1, so that also reflects on the quarterly growth as well. You should continue to expect from us that we'll guide in a responsible way and in a responsible manner. With regards to your churn question, I can tell you that churn is unfolding the way we have expected, and if there is something abnormal or or changing in our assumptions, of course, will be reflected in our guidance going forward.

48:40 Great. Thanks, Karine. And then just if you can talk about in terms of the opportunities of the pipeline, you know, compare and contrast service versus commerce, and then within commerce, the B2C versus the B2B opportunities.

48:58 Thank you, David, for the question. I think last year we announced that we were seeing convergence between commerce and knowledge. And we're seeing that, right? We have applied that into those strategic business, into those industries represented by distribution, retail, industrials, and also specific knowledge industries. So we're seeing a lot of opportunity there. Our large customers are obviously coming from those areas. And again, it's, I think, in the prepared remarks, we mentioned the Linde case, where it's really, it's agentic commerce that includes a lot of knowledge into this. So Linde is in distribution, complex distribution.

49:54 and that's how we are looking at the future of the business from a go-to-market perspective.

49:59 I appreciate it. Thank you. Your next question comes from the line of Suthansuk Marvid-Stifel. Please go ahead. Hey, guys. This is SA speaking on behalf of Suthansuk. For my first question on the sales process, we've been seeing some more deal activity for AI on the enterprise side and more positive proof points on AI monetization. So I was curious to know how has enterprise behavior, how has that been impacting your pipeline and how would you categorize how that change has gone specifically over the last three months?

50:45 Yeah, great question. This is Louis. Very much so. As we pointed out in the past few quarters, we've seen an ongoing maturing of the market. The conversations we're having today with our enterprise customers and prospects are just radically different. They're not the same as the one we were having two years ago. There is, first of all, clearly a tailwind that comes from the C-suite and the boardroom, to your point, to generate results from AI that really hit the P&L, and I think we checked that box very well.

51:32 There is also a much more mature understanding of the stack and the technology that's required, in particular, the ability to... to ground AI at high precision within enterprise data, which is squarely what Coveo does. So we check that box as well. So definitely the adoption of AI is driven by competitive necessity, but also by the desire to generate financial returns that are measurable and hit the P&L. whether it's increasing revenue or reducing costs.

52:16 This is the driver and it's good for Coveo.

52:23 Thank you. Thank you. That was helpful. For my next question, could you provide just a brief update on the partner channel first as a whole and then particularly how SAP is trending now and just given the Regentech platform, Jewel, how that helped to accelerate the pipeline?

52:45 Thank you for the question. So we're quite happy about the level of involvement of our partners, both from an ISV standpoint, SAP would fit into this, but also from a system integrator standpoint in the industries, in the core industries that we're going after. So they have a level of specialization expertise that helps quite a lot of customers deploy and Leverage to Coveo Capabilities.

53:22 Thank you. And then just lastly on M&A, with the new acquisition today, is there room for more acquisitions in the year or the next year? And on Anglera more specifically, as far as revenue contribution from a synergy standpoint, What does that look like next fiscal year? Yeah, that's my question.

53:47 Sorry, I did not want to cut you. No, it's okay. All done. Thank you. Go ahead. All right. All right. So look, on the first part of the question, so our priority really remains growing organically and maintain a strong balance sheet. So Englera is a targeted investment and a great capability that complements our commerce offering and basically our offering into those core strategic industries. So if and when we find other companies like this one, we will definitely consider, as we've always said, we are a portion of STEC. Having said that, maybe for the second part of the question, Karen?

54:33 Yes, sure. So Anglera contribution for fiscal 27 is not expected to be significant, as I said on the call. And then the longer term opportunity is to bring those capabilities into our Coveo platform. So when we're not planning to provide a separate like FY28 revenue outlook just for Anglera per se, you know, on a broader perspective, you know, as we do for every single product innovation. We expect this to increase the overall value delivered by the platform into our customers. And we're very thrilled and excited by this addition to our team.

55:16 Okay, great. Thank you. And I'll pass the line. Your next question comes from the line of Kevin Krishnaratnev. It's Kosha Bank. Your line is now open.

55:28 Hey there, good evening. Thanks for taking the question. Maybe just first, can you talk about the pipeline within your existing base of potential customers that maybe are, call it like a six-figure customer today, but could realistically expand to seven or eight over time? How do we think about that opportunity and how are you working with these customers to educate them on the benefits of taking more of your solutions and expanding over time?

55:59 Yes, thank you for the question. So we've invested in account management. We've invested in FD over the years to really grow these customers, I would say, from multiple angles. So sometimes it's more consumption. Sometimes it's additional use cases and specific customers. Sometimes it's simply new projects. So we manage these opportunities constantly. What has evolved versus maybe last year and two years ago is the completeness of the team to go after these opportunities. So we have an integrated team with technical knowledge, with business expertise, especially in those areas that we focus on.

56:57 Okay, thanks for that. Maybe the second one on NER, you know, on an X-qubit basis inflecting up to 105. It's the first time in a while that it's inflected up. I'm wondering first if you have a number on what the NER would have been excluding, you know, the expansion, the eight-figure deal. And then secondly, do we expect improvements quarter over quarter here, you know, from the 105?

57:24 Thank you, Kevin, for your question. So indeed, we're very pleased with the 3% points, as you noted, on the NER this quarter. And of course, a bit of that was captured by the large expansion you've been referring to, but also by us lapping the large single customer churn event we had last year as well. As a reminder, the timing and size of customer expansion as well as renewal can affect NER quarter over quarter. and yeah so that's you know it can fluctuate over time but you know it's certainly going in a direction that we're really happy with.

58:02 Great, good to see you. Thank you. I'll pass the line. Your next question comes from the line of Roddy Sultan with UBS. Your line is now open.

58:14 Awesome. Thanks for taking the questions here. So you guys have closed multiple seven-figure deals and an eight-figure deal this year. And if I just compare that to the average ARR per customer of 220,000, what are the biggest hurdles to closing that ARR gap for the rest of the customer base? And where do you think that average ARR per customer can ultimately get to? Thank you.

58:37 Yeah, thank you for the question. So As you know, our business includes landing new customers and then expanding them. In some cases, when there's a clear project, we are more than happy to land a seven-figure customer right away. It may take a little bit more time. It requires a little bit more work and complexity, but we continue We are more than capable and excited to do that. Sometimes we are going to land faster at a smaller amount in a more defined project that we're going to measure the results and the outcome more rapidly.

59:28 And then it creates an opportunity to expand after that. So we adapt depending on the customers, depending on the opportunity, quite frankly.

59:41 Awesome. And then maybe just a quick follow-up. On the FDE initiative, I just wanted to ask on the sort of financial impact of that. Like, how should we be thinking about how that flows through the P&L, both from sort of a revenue standpoint? Like, is there any explicit FDE services included in revenue? And then how should we think about the headcount there and how that would impact margins? Thank you.

1:00:04 So right now, FDE is included in our staff subscription offering, Radhi, so we are not driving revenue from that motion. We believe that down the road, this provides significant value to our customer and that gets reflected back to the subscription. From a margin perspective, this is part of our cost of subscription that you can see in our P&L.

1:00:30 Hey, on the top. On the topic of FDE, if I may, this is Louis. I think this is a very important motion. You know, Coveo is a platform with broad applications. You know, our model, as Lana said before, is land and expand. So we sort of find a wedge to, you know, sell a first use case and deploy a first use case. But, you know, when FDEs get involved, we can really show The Art of the Possible, the spectrum of applications that we can support and where we can create value. We get more intimate also with the value we create, which obviously helps us with both conversion and price power and expansion.

1:01:21 We can certainly report that we're already seeing some very positive metrics when our FDEs, when our forward deployed engineers are involved in terms precisely of uncovering more opportunities and growing the accounts. And so to your question about the impact on margins and so on, as you know, our subscription is north of 80% gross margin. So as we grow that subscription, there's a lot of contribution here. So it's definitely a solid economic model. Your next question comes from the line of Koji Ikeda with BFA Securities.

1:02:12 Your line is now open.

1:02:14 Hey, this is George McGreehan on for Koji. Thank you for taking our questions. I had one, you know, just with record bookings, you know, Gen AI contribution to that being 50% versus 30% last quarter, you know, trending in a great direction. I wanted to kind of ask what signals would it take for you guys to invest more heavily in go-to-market and chasing and pursuing that and the strategic customer cohort growth that's out there. Thank you.

1:02:50 Look, I believe we are constantly looking at signal and investing in consideration of those signals we're getting. Of course, I'll be providing some longer view on FY28 as we move, but right now, I'm pretty satisfied with with some areas of our spending, especially around strategic cohorts and so on. When I see us getting those very exciting customers where I know we can have a strong differentiation, having said that, there's always areas where we are being more cautious or we are revisiting to make sure our money is put at play.

1:03:35 When I look at our P&L, frankly, I feel like spending relative to the growth and so on is decent, and we'll revisit that constantly.

1:03:48 George, Louis again. Look, obviously, we ask that question all day, every day. Timing-wise, I would say certainly as we reported last quarter and this quarter, we're seeing a much more favorable climate in terms of the maturity of the buyer and the understanding of the differentiation and value of Coveo. There are really three levers here to the model. Increasing demand, obviously. So we're investing quite a bit in making sure that the company matters and how it's differentiated in the marketing area and how the company is understood and so on. Number two is the conversion. So we're investing in the industries where we're Thank you for joining us.

1:04:55 While one might think that you just double the reps or you just build a bigger infrastructure, we're really focusing on the health of the economic model, and then we scale that. There's a timing to all of this which coincides with what we think is stronger tailwinds right now for the company.

1:05:24 That's really how we're thinking about it. And there are no further questions at this time. I will now turn the call back over to Laurent Simoneau. Please continue.

1:05:44 All right. Okay, great. Thanks, everyone, for joining us today. And I want to thank all of our shareholders for their continued support. I look forward to updating you on our progress during our Q3 results. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.