Demandware Announces Second Quarter 2014 Financial Results

56% Subscription Revenue Growth

Business Wire

BURLINGTON, Mass.--(BUSINESS WIRE)--

Demandware®, Inc. (DWRE), the industry-leading provider of enterprise cloud commerce solutions, today announced strong financial results for its second quarter ended June 30, 2014.

Second Quarter Highlights

  • Subscription revenue for the second quarter was $32.5 million, a 56% year over year increase from $20.8 million in the second quarter of 2013
  • Total revenue for the second quarter was $36.1 million, a 55% year over year increase from $23.2 million in the second quarter of 2013
  • GAAP subscription gross margin of 81%, versus 80% in the second quarter of 2013
  • GAAP total gross margin of 72%, versus 72% in the second quarter of 2013
  • 226 live customers at June 30, 2014, an increase of 40% from 162 last year
  • 924 live sites at June 30, 2014, an increase of 39% from 667 last year
  • Conducted Annual XChange Customer Conference

“We were very pleased to achieve another quarter of greater than 50 percent subscription revenue growth,” stated Tom Ebling, Chief Executive Officer, Demandware. “With its enterprise-class scalability, robust merchandising functionality and high-levels of customization, the Demandware Commerce platform empowered customers to grow their digital operations, which drove our outperformance again this quarter. Today, retailers are increasingly looking for a single platform to manage all consumer interactions across physical and digital channels. Our cloud platform and deep heritage of innovation, puts us in the best competitive position to deliver on retail’s increasingly demanding omni-channel imperatives.”

  • Demandware signed significant new customers during the quarter, including Bossini Clothing, Dooney & Bourke, Greis Deco, Gurwitch Products, Men at Work, Pacific Coast Feather and Panasonic.
  • Leading retailers such as Comark, Payless ShoeSource, Stokke and Timbuk2 were among the companies that launched new initial sites on the Demandware Commerce platform during the second quarter.
  • Existing customers like american golf, Bare Escentuals, Ecco, Gaiam, L’Oreal, Lifetime Brands, Quiksilver, Reitmans, Rituals, Sandro and Wolverine Worldwide expanded their operations on the Demandware Commerce platform.

“Our better than expected growth in the second quarter demonstrates the strength of our shared success strategy,” stated Tim Adams, Demandware Chief Financial Officer. “As we move into the second half of the year, we remain focused on increasing market share as quickly as possible and enhancing our leadership position in the multi-billion dollar market for digital commerce solutions. We are confident that our investments, particularly in large enterprise accounts, omni-channel solutions and geographic expansion, will deliver long term value to our shareholders.”

Our GAAP net loss for the second quarter of 2014 was $9.2 million, or $(0.27) per share, as compared to a net loss of $8.5 million, or $(0.28) per share attributable to common stockholders, for the second quarter of 2013. Non-GAAP net loss for the second quarter of 2014 was $1.0 million, or $(0.03) per share, as compared to non-GAAP net loss of $5.1 million, or $(0.17) per share, for the second quarter of 2013.(1)

At June 30, 2014, we had $257.9 million in cash, cash equivalents and short term investments on the balance sheet, as compared to $279.6 million at December 31, 2013.

(1) Non-GAAP net loss and non-GAAP net loss per share excludes expenses related to stock-based compensation and compensation expense related to contingent retention bonuses for the January 2014 acquisition of Mainstreet Commerce.

Quarterly Conference Call

To access the call which will take place today at 8:30 a.m. ET, please dial (866) 700-6293 in the U.S. or +1 (617) 213-8835 internationally. The Passcode for the call is: 41124453. A live webcast of the call will also be available on the investor relations section of the company’s website. An audio replay will be available for one week following the conclusion of the call through August 12, 2014. The replay number is (888) 286-8010 in the U.S. or +1 (617) 801-6888 internationally. The Passcode for the replay is: 64398119. The replay will also be available as a webcast on Demandware’s Investor Relations website.

About Demandware

Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world’s leading retailers to continuously innovate in our complex, consumer-driven world. Demandware’s open cloud platform provides unique benefits including seamless innovation, the LINK ecosystem of integrated best-of-breed partners, and community insight to optimize customer experiences. These advantages enable Demandware customers to lead their markets and grow faster. For more information, visit www.demandware.com, call +1-888-553-9216 or email info@demandware.com.

Forward-looking Statements

This release contains forward-looking statements, including statements regarding Demandware's future financial performance, market growth, the demand for Demandware's solutions, and general business conditions. Any forward-looking statements contained in this press release are based upon Demandware's historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent Demandware's expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Demandware disclaims any obligation to update the forward-looking statements in the future. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, our ability to attract new customers; the extent to which customers renew their contracts for our solution; the seasonality of our business; our ability to manage our growth; the variance of our business from quarter to quarter; the continued growth of the market for on-demand software; the timing and success of solutions offered by our competitors; unpredictable macro-economic conditions; the loss of any of our key employees; the length of the sales and implementation cycles for our solutions; increased demands on our infrastructure and costs associated with operating as a public company; failure to protect our intellectual property; changes in current tax or accounting rules; and other risks and uncertainties. Further information on potential factors that could affect actual results is included in Demandware’s reports filed with the SEC.

Non-GAAP Financial Measures

Demandware has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss per share. Demandware uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Demandware’s ongoing operational performance. Demandware believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial measures with other companies in Demandware's industry, many of which present similar non-GAAP financial measures to investors to help investors better understand the ongoing operating performance of the business. Non- GAAP operating loss, non-GAAP net loss and non-GAAP net loss per share exclude expenses related to stock-based compensation and compensation expense related to contingent retention bonuses for the January 2014 acquisition of Mainstreet Commerce. Stock-based compensation is often difficult to predict and often excluded by other companies to help investors understand the operational performance of their business. Non-GAAP financial measures that the Company uses may differ from measures that other companies may use. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure. A reconciliation of GAAP to the non-GAAP financial measures has been provided in the tables included as part of this press release.

           
Demandware, Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
 

June 30, 2014

 

December 31, 2013
ASSETS
 
Current assets:
Cash and cash equivalents $ 169,799 $ 242,425
Short-term investments 88,102 37,133
Accounts receivable, net of allowance of doubtful accounts 24,842 28,402
Prepaid expenses and other current assets   9,649     4,315  
Total current assets 292,392 312,275
 
Property and equipment, net 15,195 9,790
Purchased intangible assets, net 2,334 -
Goodwill 8,966 -
Other assets   4,080     1,866  
Total assets $ 322,967   $ 323,931  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Current portion of notes payable $ 1,493 $ 2,727
Accounts payable 3,061 3,174
Accrued expenses 15,059 17,362
Deferred revenue 23,413 19,609
Deferred rent   35     184  
Total current liabilities   43,061     43,056  
 
Long-term liabilities:
Deferred revenue 18,106 18,862
Notes payable 631 1,524
Deferred rent   1,069     884  
Total liabilities   62,867     64,326  
 
Stockholders' equity:
Common stock 349 343
Additional paid-in capital 375,197 356,766
Accumulated other comprehensive gain 66 64
Accumulated deficit   (115,512 )   (97,568 )
Total stockholders’ equity   260,100     259,605  
Total liabilities and stockholders' equity $ 322,967   $ 323,931  
 
               
Demandware, Inc.
Condensed Consolidated Statements of Operations
(unaudited; in thousands, except per share data)
 
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
Revenue:
Subscription $ 32,505 $ 20,806 $ 62,410 $ 39,711
Services   3,580     2,401     5,853     4,010  
Total revenue   36,085     23,207     68,263     43,721  
 
Cost of revenue:
Subscription 6,266 4,080 11,700 8,044
Services   3,739     2,462     7,213     4,980  
Total cost of revenue   10,005     6,542     18,913     13,024  
 
Gross profit 26,080 16,665 49,350 30,697
 
Operating expenses:
Sales and marketing 17,621 14,180 34,104 25,556
Research and development 8,040 5,377 15,011 10,117
General and administrative   9,444     5,521     17,756     10,754  
Total operating expenses   35,105     25,078     66,871     46,427  
 
Loss from operations   (9,025 )   (8,413 )   (17,521 )   (15,730 )
 
Other income (expense):
Interest income 75 55 141 117
Interest expense (30 ) (68 ) (83 ) (147 )
Other income (expense)   22     116     11     (303 )
 
Other income (expense), net   67     103     69     (333 )
Loss before income taxes (8,958 ) (8,310 ) (17,452 ) (16,063 )
Income tax expense   227     145     492     364  
 
Net loss $ (9,185 ) $ (8,455 ) $ (17,944 ) $ (16,427 )
 
Net loss per share, basic and diluted $ (0.27 ) $ (0.28 ) $ (0.52 ) $ (0.55 )
 
Weighted average common shares outstanding, basic and diluted   34,712     30,266     34,562     30,113  
 
 
Demandware, Inc.
Stock Based Compensation Expense
(unaudited, in thousands)
               
 
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
 
Cost of subscription revenue $ 167 $ 95 $ 300 $ 210
Cost of services revenue 516 233 909 615
Sales and marketing 1,974 979 3,467 2,075
Research and development 1,795 822 3,331 1,735
General and administration   2,882   1,229   4,994   2,709
$ 7,334 $ 3,358 $ 13,001 $ 7,344
 
 
 
Demandware, Inc.
Compensation Expense Related to Contingent Retention Bonuses
(unaudited, in thousands)
 
 
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
 
Sales and marketing $ 436 $ - $ 762 $ -
Research and development   436   -   762   -
 
$ 872 $ - $ 1,524 $ -
 
               
Demandware, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,185 ) $ (8,455 ) $ (17,944 ) $ (16,427 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 1,645 1,116 2,943 2,195
Bad debt expense - - 269 53
Stock-based compensation 7,334 3,358 13,001 7,344
Consulting expense settled with a restricted stock unit award 77 - 77 -
Deferred rent expense 58 20 32 (9 )
Other non-cash reconciling items 232 165 367 310
Changes in operating assets and liabilities:
Accounts receivable (1,603 ) (2,187 ) 3,802 (1,027 )
Prepaid expenses and other current assets 563 502 (5,284 ) (463 )
Other long term assets 1,146 (33 ) (2,205 ) (41 )
Accounts payable 735 (649 ) 285 (789 )
Accrued expenses (955 ) 4,455 (2,473 ) 4,414
Deferred revenue   1,928     5,815     2,880     10,659  
Net cash provided by (used in) operating activities   1,975     4,107     (4,250 )   6,219  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,905 ) (2,350 ) (8,274 ) (3,970 )
Purchase of marketable securities (45,372 ) (13,116 ) (82,275 ) (30,649 )
Acquisition, net of cash acquired - - (12,136 ) -
Sale and maturity of marketable securities 13,725 23,784 30,950 38,609
Change in restricted cash and other assets   7     31     (9 )   (154 )
Net cash (used in) provided by investing activities   (33,545 )   8,349     (71,744 )   3,836  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares purchased under Employee Stock Purchase Plan 643 - 643 -
Proceeds from exercise of stock options 1,368 1,247 4,716 1,561
Proceeds from issuance of notes payable - 1,423 - 1,997
Payments of equipment notes (611 ) (750 ) (1,221 ) (1,432 )
Payments of software financing agreement   -     (235 )   (766 )   (467 )
Net cash provided by financing activities   1,400     1,685     3,372     1,659  
 
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   (11 )   20     (4 )   (81 )
 
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (30,181 ) 14,161 (72,626 ) 11,633
CASH AND CASH EQUIVALENTS — Beginning of period   199,980     56,349     242,425     58,877  
CASH AND CASH EQUIVALENTS — End of period $ 169,799   $ 70,510   $ 169,799   $ 70,510  
 
               
Demandware, Inc.
Calculation of Non-GAAP Operating Loss, Non-GAAP Net Loss, and Non-GAAP Net Loss Per Share
(unaudited; in thousands, except per share data)
 
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 2014 2013
Non-GAAP Operating Loss:
GAAP operating loss $ (9,025 ) $ (8,413 ) $ (17,521 ) $ (15,730 )
Add back:
Stock-based compensation 7,334 3,358 13,001 7,344
Compensation expense related to contingent retention bonuses   872     -     1,524     -  
Total non-GAAP operating loss   (819 )   (5,055 )   (2,996 )   (8,386 )
 
Non-GAAP Net Loss:
GAAP net loss $ (9,185 ) $ (8,455 ) $ (17,944 ) $ (16,427 )
Add back:
Stock-based compensation 7,334 3,358 13,001 7,344
Compensation expense related to contingent retention bonuses   872     -     1,524     -  
 
Total non-GAAP net loss   (979 )   (5,097 )   (3,419 )   (9,083 )
 
Non-GAAP Net Loss Per Share:
GAAP net loss $ (9,185 ) $ (8,455 ) $ (17,944 ) $ (16,427 )
Weighted average common shares outstanding, basic and diluted 34,712 30,266 34,562 30,113
 
GAAP net loss per share, basic and diluted $ (0.27 ) $ (0.28 ) $ (0.52 ) $ (0.55 )
Add back:
Stock-based compensation 0.21 0.11 0.38 0.25
Compensation expense related to contingent retention bonuses   0.03     -     0.04     -  
Non-GAAP net loss per share, basic and diluted: $ (0.03 ) $ (0.17 ) $ (0.10 ) $ (0.30 )
 

Contact:
Investor Relations Contact:
Demandware
Erica Smith, 781-425-1222
Vice President, Investor Relations, Demandware
esmith@demandware.com

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