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Demandware, Inc. (DWRE)

Q4 2012 Earnings Conference Call

February 14, 2013 08:30 AM ET


Erica Smith - Director of Investor Relations

Thomas Ebling - President and Chief Executive Officer

Scott Dussault - Executive Vice President and Chief Financial Officer


Greg Dunham - Goldman Sachs

Thomas Ernst - Deutsche Bank

Richard Davis - Canaccord Genuity

Laura Lederman - William Blair & Company

Shyam Patil - Raymond James & Associates

Shawn Milne - Janney Capital Markets

Brian Schwartz – Oppenheimer

Craig Nankervis - First Analysis Corp



Good day ladies and gentlemen and welcome to the Demandware Fourth Quarter and Year-End Conference Call. My name is Connie, and I am your operator for today. At this time, all participants are on listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, the call is being recorded for replay purposes.

And now, I would like to turn the call over to Erica Smith, Director of Investor Relations. Please go ahead, Erica.

Erica Smith

Thank you very much. Good morning and thank you for joining today’s call to discuss our results for the fourth quarter and year-end. Here with me today are Tom Ebling, our CEO; and Scott Dussault, our CFO.

Tom will provide highlights for the fourth quarter and the year, and Scott will talk about the financials in more detail. Then we will open the call up to questions. Before we begin, let me remind you that during the call, we will discuss both GAAP and non-GAAP results to supplement investor understanding of the company’s financials. A GAAP to non-GAAP reconciliation schedule is provided in the press release this morning. Also, today’s discussion contains forward-looking statements such as statements regarding the market acceptance and SaaS solutions, the growth of e-commerce, our business strategy, demand for our solutions, growth of our customer’s e-commerce businesses, the seasonality of our business, our pipeline, and our projected financial results.

Forward-looking statements involve risks and uncertainties and our actual results could differ materially from those projected in our forward-looking statements. The company assumes no obligation to update the information provided during today's call. To revise any forward-looking statements or to update the reasons actual results could differ materially from those anticipated in forward-looking statements. These risks and uncertainties are risks relating to our ability to attract new customers, the extent to which customers grow their revenue and renew their contracts for our solutions as well as other risk factors that could affect our results, are included in our 10-Q and other filings with the SEC.

With that, I will turn the call over to Tom.

Thomas Ebling

Thank you, Erica. Good morning. Thank you for joining us in today’s call. We are pleased to have strong finish to our first year as a public company, and we entered 2013 as the leading cloud-based digital commerce solution for enterprise class retailers and branded manufacturers. In the fourth quarter, our subscription revenue grew 40% to a record $22.9 million, which exceeded the updated guidance we provided in mid-December of between $20.5 million and $21.5 million.

Neckermann filed for insolvency on October 1st of 2012 and did not contribute meaningfully to our subscription revenue in the fourth quarter, which makes the 40% growth that much more rewarding. On top of it, excluding Neckermann in the fourth quarters of 2011 and 2012, our subscription revenue grew an impressive 56%.

For the year, we recorded record subscription revenue of $67.9 million or a 59% increase excluding Neckermann. Scott will talk more about the details of the quarter and the year later in the call. As most of you know, we have a unique shared success business model, a model that our customers love where customers pay us a percentage of gross merchandise value or GMV. Our model enables our customers to efficiently launch and experiment with new sites for new brands, geographies or channels to get to market quickly and grow their revenue.

So, our top line growth in the fourth quarter was driven by our customers’ strong performance during the holiday season. We would love to take all of the credit for our customers’ growth, but the fact of the matter is we have great customers, industry leaders who are forward thinkers and fully understand that the digital channel is extremely important to their growth. For them, digital commerce is strategic.

Before choosing Demandware, our customers weigh the pros and cons in investing in our state-of-the-art cloud technology platform, are investing in the old guard of traditional license software. They have evaluated the facts. We have unparalleled uptime. Platform achieved 99.98% SLA availability in the fourth quarter, which is when the greatest demands are placed on our infrastructure. And since the company is in inception, our SLA availability has been greater than 99.98%, which is well above industry average.

We enabled our customers to create highly customized brand experiences. We have customers like Adidas, Brooks Brothers, Versace, Lands’ End, Godiva, Pier 1, Paxton, New Balance, company’s brands are their most valuable assets.

We provide constant innovation, upgrading our software without disruption six times a year, so our customers stay ahead of the accelerating pace of technology change. We have customers today who are executing their army channel strategies on their platform, and probably most importantly, we empower our customers enabling them to grow their businesses and execute their complex digital strategies.

With Demandware, customers can free up their extremely valuable resources to do what they do best, sell it to their customers. The power the Demandware Commerce platform and our robust marketing and merchandising tools speaks of itself and is demonstrated in our customers’ results. The analytics company comScore measures U.S. retail e-commerce spending and growth, and for the year ended December 31s, 2012, estimated that growth at 15%.

In 2012, our comparable customers grew their GMV 34% over 2011. Simply put the fantastic growth through their digital channels. In fact, they grew more than two times faster than the comScore estimate. As a reminder, comparable customers are the set of customers who are on our platform for all of 2011 and all of 2012. No other vendor, cloud or on-premise software can demonstrate this type of growth across their customer base.

As I mentioned, our customers represent some of the largest and the most well-known brands and retailers in the world. During 2012, 14 customers generated more than $100 million in GMV over our platform, double the seven we had last year and also ahead of the expectations we talked about last quarter. They have 12 customers of that scale by the end of 2012. And these customers stand for the geographies we targeted in 2012: North America, the United Kingdom, Germany and Northern Europe. As a reminder, the 14 does not include customers like Brooks Brothers who launched on the platform in October.

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