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Demandware Announces First Quarter 2016 Financial Results

Live customers reached 349 at March 31, 2016, an increase of 25% from 279 last year

Live sites reached 1,590 at March 31, 2016, an increase of 28% from 1,241 last year

“We made excellent progress against our 2016 goals, delivering on key customer, technology, and financial objectives,” stated Tom Ebling, CEO, Demandware. “We continue to expand up market, signing larger customers while driving above-market growth in our customer base. From a technology perspective, we rolled out meaningful enhancements to our platform, including enabling predictive recommendations for all digital customers, and remain on track to release Demandware Store to US customers in the fourth quarter. In addition, we were pleased to be named as a leader in the Gartner Magic Quadrant for Digital Commerce, the only cloud-based provider to be placed in this category, and a validation of our dedication and commitment to innovation and to our customers.”

Demandware signed significant new customers during the quarter, including Belk, BoConcept, Duluth Trading, Figleaves, Fragrance Direct, Mitchell Gold + Bob Williams, Sonos, Timex, and Wolford.

Leading retailers such as Acushnet, Avenue 32, Charles Tyrwhitt, Christopher & Banks, Ivyrevel, Pret A Manger, Stonewall Kitchen, Trimtex Sport, TTS Group, and W. Atlee Burpee launched initial sites on the Demandware Commerce Cloud.

Existing customers like BabyOne, Jarden Corp, L’Oreal, Samsonite, TSI Holdings, Warehouse Fashions, Williamson-Dickie, Wolverine Worldwide, and World Wrestling Entertainment expanded their operations on the platform launching additional commerce sites.

“Total revenue exceeded our guidance range driven by strength in our services business,” said Tim Adams, Chief Financial Officer. “Furthermore, we delivered $2 million of non-GAAP net income to shareholders versus a non-GAAP loss a year ago. These results show a strong start to the year, and we remain confident in the future given our growth investments, which we believe will both strengthen our leadership position and enable us to deliver even more value to our shareholders.”

Total revenue for the first quarter of 2016 was $67.1 million, a 33% increase from $50.3 million in the first quarter of 2015. Our GAAP net loss for the first quarter of 2016 was $11.7 million as compared to a GAAP net loss of $5.2 million for the first quarter of 2015. Non-GAAP net income for the first quarter of 2016 was $2.2 million as compared to non-GAAP net loss of $0.1 million for the first quarter of 2015.

At March 31, 2016, we had $195.8 million in cash, cash equivalents and short term investments on the balance sheet, as compared to $197.0 million at December 31, 2015.

Indicates a non-GAAP measure. Refer to “Non-GAAP Financial Measures” below and the accompanying reconciliations for more detailed information about these non-GAAP measures.

Outlook

Tim Adams remarked, “We are raising our 2016 revenue guidance by $3 million to reflect the first quarter outperformance in services. With this additional services revenue, we are raising our guidance for operating income and net income by approximately $2 million. Otherwise, our guidance framework is consistent with the outlook we provided at the start of the year. We remain enthusiastic about the value we can bring to our shareholders and customers alike.”

For 2016, the company expects:

Current

Change

$ and shares in millions

Comparable Customer GMV Growth

Bookings Growth

Churn Rate

$260.0

$270.0

$298.0

$308.0

$295.0

$305.0

Gross Margin (GAAP)

Gross Margin (Non-GAAP)

Operating Loss (GAAP)

$(50.0)

$(48.0)

$(52.0)

Operating Income (Non-GAAP)

Net Loss (GAAP)

$(54.0)

Net Income (Non-GAAP)

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

Year over Year in Constant Currency

Quarterly Conference Call

To access the call, which will take place today at 5:00 p.m. ET, please dial (855) 312-3345 in the U.S. or +1 (330) 863-8743 internationally. The passcode for the call is: 90165558. 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 following the conclusion of the call through May 4, 2016. The replay number is (855) 859-2056 in the U.S. or +1 (404) 537-3406 internationally. The passcode for the replay is: 90165558. 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

Demandware is a registered trademark of Demandware, Inc.

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 digital commerce software and retail; 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 latest Annual Report on Form 10-K filed with the SEC.

Demandware has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP gross margin, non-GAAP subscription gross margin, non-GAAP operating income (loss), non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss) per share. This press release also presents subscription revenue and percent change in subscription revenue on a GAAP and a “constant currency” basis as well as other operating metrics on a constant currency basis so that revenue and other operating metrics can be viewed without the impact of fluctuations in foreign currency exchange rates, allowing for a period-to-period comparison of underlying business performance. 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 gross margin, non-GAAP subscription gross margin, non-GAAP operating income (loss), non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss) per share exclude

amortization

expenses related to stock-based compensation, contingent compensation expense related to

acquisitions, amortization of intangible assets and the non-cash tax benefit related to our acquisitions

. Our non-GAAP gross margin, non-GAAP operating income and non-GAAP net income guidance for 2016 also exclude amortization expenses related to stock-based compensation, contingent compensation expense related to acquisitions and amortization of intangible assets. Stock-based compensation is often difficult to predict and often excluded by other companies to help investors understand the operational performance of their business. Subscription revenue as well as other operating metrics on a constant currency basis exclude the impact of foreign currency exchange rates, which is calculated by applying the prior period’s foreign currency exchange rates to the current period foreign currency revenue, because foreign currency exchange rates are subject to volatility and can obscure underlying performance. 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.

Investor Relations Contact:

James Hillier

Vice President, Investor Relations, Demandware

Office: 781-425-7675

Email: jhillier@demandware.com

Condensed Consolidated Balance Sheets

(unaudited, in thousands)

ASSETS

Current assets:

Cash and cash equivalents

117,841

114,989

Short-term investments

77,915

82,020

Accounts receivable, net of allowance for doubtful accounts

49,790

60,793

Prepaid expenses and other current assets

10,654

Total current assets

256,200

266,226

Property and equipment, net

27,551

21,862

Intangible assets, net

22,504

23,805

Goodwill

59,465

Other assets

Total assets

372,097

377,398

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND

STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued expenses

27,508

37,287

Deferred revenue

31,585

31,426

Total current liabilities

63,587

71,579

Long-term liabilities:

17,153

15,133

Other long-term liabilities

Total liabilities

83,896

89,475

Redeemable noncontrolling interest

Stockholders’ equity:

Common stock

Additional paid-in capital

448,943

437,137

Accumulated other comprehensive loss

Accumulated deficit

(160,866

(149,175

Total stockholders’ equity

287,863

287,466

Total liabilities, redeemable noncontrolling interest and stockholders’ equity

Condensed Consolidated Statements of Operations

(unaudited; in thousands, except per share data)

Three Months Ended March 31,

Revenue:

56,762

43,248

Services and other

10,318

67,080

50,276

Cost of revenue:

11,860

Total cost of revenue

20,559

15,043

Gross profit

46,521

35,233

Operating expenses:

Sales and marketing

26,904

21,309

Research and development

19,075

13,683

General and administrative

12,140

11,404

Total operating expenses

58,119

46,396

Loss from operations

(11,598

(11,163

Other income:

Interest income

Other (expense) income

Other income, net

Loss before income taxes

(11,431

(10,875

Income tax provision (benefit)

(5,595

Net loss

(11,840

(5,280

Less: Net loss attributable to noncontrolling interest

Net loss attributable to Demandware

(11,691

(5,222

Net loss per share attributable to Demandware, basic and diluted

Weighted average number of common shares outstanding, basic and diluted

36,325

35,360

Condensed Consolidated Statements of Cash Flows

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

Consulting expense settled with equity awards

Bad debt expense

10,353

Deferred income taxes

(5,807

Amortization of premium on marketable securities

Other non-cash reconciling items

Changes in operating assets and liabilities:

10,348

11,662

(2,215

(1,736

(9,897

(7,691

Other assets and liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

(6,469

(6,809

Purchase of marketable securities

(20,237

(24,569

Sale and maturity of marketable securities

24,298

33,192

Acquisition, net of cash acquired

(54,733

Net cash used in investing activities

(2,408

(52,919

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Net cash provided by financing activities

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(49,527

CASH AND CASH EQUIVALENTS—Beginning of period

158,827

CASH AND CASH EQUIVALENTS—End of period

109,300

Stock Based Compensation Expense

Cost of subscription revenue

Cost of service revenue

General and administration

Contingent Compensation Expense Related to Acquisitions

Amortization Expense Related to Acquired Intangible Assets

Non-Cash Taxes

Non-cash tax (benefit)

(5,873

Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures

Reconciliation between GAAP operating (loss) and non-GAAP operating income (loss):

Add back:

Contingent compensation expense related to acquisitions

Amortization expense related to acquired intangible assets

Non-GAAP operating income (loss)

Reconciliation between GAAP operating expenses and non-GAAP operating expenses:

Non-GAAP operating expenses

46,494

37,320

Numerator:

Reconciliation between GAAP net (loss) attributable to Demandware and non-GAAP net income (loss) attributable to Demandware:

Non-cash tax (benefit)

Non-GAAP net income (loss) attributable to Demandware

(1) In the first quarter of 2015, Demandware recorded a non-cash tax benefit associated with the acquisition of Tomax.

Denominator:

Reconciliation between GAAP and non-GAAP weighted average shares used in computing diluted non-GAAP net income per common share:

GAAP weighted average common shares outstanding, basic

Effect of dilutive securities

Non-GAAP weighted average common shares outstanding, dilutive

37,804

Non-GAAP net income (loss) per share, basic and diluted:

(2) These securities are anti-dilutive on a GAAP basis as a result of the Company's net loss, but are considered dilutive on a non-GAAP basis in periods where the Company has reported positive non-GAAP earnings.

Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures (Continued)

(unaudited; in thousands)

Reconciliation between GAAP subscription gross margin and non-GAAP subscription gross margin:

Subscription gross profit

44,902

34,375

Stock-based compensation allocated to cost of

subscription revenue

allocated to cost of subscription revenue

Non-GAAP Subscription Gross Profit

46,242

35,650

Non-GAAP Subscription Gross Margin

Reconciliation between GAAP total gross margin and non-GAAP total gross margin:

Stock-based compensation allocated to cost of revenue

assets allocated to cost of revenue

Non-GAAP Total Gross Profit

48,823

37,135

Non-GAAP Total Gross Margin

% of Growth

Reconciliation between GAAP subscription revenue growth and non-GAAP subscription revenue growth on a constant currency basis:

Impact of changes in exchange rates

Subscription revenue on a constant currency basis

57,352

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

DEMANDWARE's SVP and General Counsel just disposed of 1,657 shares - April 25, 2016
DEMANDWARE releases salary data. CEO sees compensation fall -16% - April 1, 2016
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