The leaders of Coveo Solutions Inc. on Wednesday put a positive spin on the lacklustre stock performance by a slew of Canadian technology companies that have gone public lately on the Toronto Stock Exchange, including their own.
“I personally disagree with the dominant narrative right now in Canada that IPOs are not going well,” Coveo chief executive officer Louis Têtu told The Globe and Mail after the formal closing of the Quebec City company’s $215-million IPO at $15 a share. “This is just not true … . We felt we had the right critical mass to create a great Canadian public technology company. It sounds like the markets agreed with us.”
Mr. Têtu and Jean Lavigueur, Coveo’s chief financial officer, said the IPO showed how far Canada had come since 2005, when their previous software company, Taleo Corp., made its debut on the Nasdaq Stock Market.
Back then, “we had to go south of the border” to find willing investors, Mr. Lavigueur said. By contrast, Coveo went public only on the TSX, with 60 per cent of the deal sold to Canadian buyers. Three of the top pre-IPO investors were Canadian: the Fonds de solidarité FTQ, the Quebec government and Ontario Municipal Employees Retirement System.
“It’s great to see Canadian institutional investors coming together, supporting great Canadian technology companies trading on the TSX,” the CFO said. “That’s not something we could have done 16 years ago. Canada has come a long way.”
Coveo received more than $1-billion in orders for its IPO, which was co-led by BMO Nesbitt Burns, Merrill Lynch Canada, RBC Dominion Securities and UBS Securities Canada. The stock hit $18 on its first day of trading last Thursday, but has since retreated, briefly trading below the issue price Tuesday. That makes it the fourth new tech issue this autumn – following D2L Corp., Q4 Inc. and E Automotive Inc. – to trade below its issue price. Coveo stock closed Wednesday at $15.30, up 1.7 per cent.
Mr. Têtu dismissed Coveo’s ho-hum start as a public company, noting the share price of New York Stock Exchange-listed rival Elastic NV had dropped by 15 per cent over the previous four sessions. “There is a set of market dynamics we don’t control; the tide raises and lowers all boats,” he said. “I think the jury is going to be out until the first earnings call [as a public company] and the subsequent earnings call. I think anybody who understands the stock market and IPOs … wouldn’t draw conclusions” from the stock’s early performance.
Coveo became the 20th Canadian tech IPO on the TSX to raise $50-million or more since July, 2020. By contrast, there were 12 such IPOs in the 11 years ended December, 2019. Despite the most recent run, the public-markets performance of pandemic-era new tech issues has lagged overall markets.
Coveo sells artificial-intelligence-powered technology known as “insight engines” to more than 475 customers – including BlackBerry, Salesforce, Lee Valley, BRP and Xero – that offer the same kind of personalized, relevant search results on their websites as those powered by Google or Amazon.
Like some of the other recent IPOs, Coveo has had a relatively soft combination of revenue growth and operating profitability in recent reporting periods. Coveo generated revenue of US$37.7-million in the six months ended Sept. 30, up 23.1 per cent from the same period a year earlier. The company’s revenue grew by 16.9 per cent in its most recent full fiscal year, which ended March 31, 2021, and 25.1 per cent in the year before that. Meanwhile, it posted operating losses equal to 37.4 per cent of revenue, 31.7 per cent and 25.7 per cent, respectively, in the corresponding periods.
Mr. Lavigueur noted Coveo’s year-over-year growth rate in quarterly online software subscription revenue had increased from below 25 per cent earlier in the pandemic to 31.1 per cent in the three months ended Sept. 30. Its operating loss narrowed from 55.1 per cent of revenue in the quarter ended March 30 to 34.6 per cent two quarters later. “As long as we keep improving our operating loss as a percentage of revenue every fiscal year, and get on the path to break-even cash flow, I think that is the right mix” to please investors, he said.
The pair said Coveo went public in part to position its brand globally and have publicly traded stock to entice prospective employees and to pay for future acquisitions. Coveo last month paid US$42.9-million in cash for London-based Qubit Digital.
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Sean Silcoff