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Demandware, Inc. (DWRE)

Q3 2012 Earnings Call

November 6, 2012, 8:30 a.m. ET


Erica Smith - Director, IR

Tom Ebling - President & CEO

Scott Dussault - EVP & CFO


Greg Dunham - Goldman Sachs

Laura Lederman - William Blair

Tom Ernst (Stan) - Deutsche Bank

Richard Davis – Canaccord Genuity

Shyam Patil – Raymond James

Brian Schwartz – Oppenheimer

Craig Nankervis - First Analysis Corp.

Richard Davis – Canaccord Genuity

Shawn Milne – Janney Capital Markets



Good morning, and welcome to the Demandware's third quarter financial results conference call. My name is Cheney and I'll be the operator for the operator for today's call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded.

I will now turn the call over to Erica Smith, Director of Investor Relations with Demandware.

Erica Smith – Director, IR

Thank you, Cheney. Good morning, and thank you for joining today's call to discuss our results for the third quarter. Here with me today are Tom Ebling, our CEO, and Scott Dussault, our CFO. Tom will provide highlights for the quarter and Scott will talk about the financials in more detail. Then we will open it up for 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 was provided in the press release this morning.

Also, today's discussion contains forward-looking statements such as statements regarding the market acceptance of 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. The risks and uncertainties include 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, all included in our 10-Q and other filings with the SEC.

With that, I'm going to turn the call over to Tom.

Tom Ebling

Good morning. Thank you for joining us on today's call.

We were very pleased to post another quarter of strong financial results with Subscription revenue increasing 45% to $16.3 million. Our results were driven by the great success our customers are having on the Demandware Commerce platform. We have the right customers. They view digital commerce as strategic and we empower them to the grow their businesses.

With Demandware, our customers get to market faster, innovate more rapidly, and launch sites more quickly. They no longer have to worry about things like is my digital commerce up and running and do I have enough capacity for the holiday season. Our state-of-the-art cloud infrastructure takes those headaches away. In fact, during the third quarter, we achieved average uptime of 99.99%, which is well above industry averages.

We also give customers more control over their e-commerce operation than they had previously with homegrown solutions, traditional on-premise software, or outsourced models. With Demandware, our customers can focus in adding real value to their digital commerce business. They can market and merchandise to their consumers, creating unique seamless brand experiences across channels and geographies.

What does this mean? Our customers grow faster and because of our shared success model, we grow faster. For the nine months ended September 30th, 2012, Demandware comparable customers grew their gross merchandise value, or GMV, greater than 35%. This growth far exceeds e-commerce industry average growth rates published by ComSquare.

As a reminder, comparable customers are customers that operated on the Demandware Commerce platform for the full nine months ended September 30th in both 2012 and 2011.

Existing customers grow in a number of ways. Customers like Life is Good, Solstice Sunglasses, and OtterBox grow their e-commerce businesses through a single site while other customers like Crocs, Deckers, and Mother Care grow their initial Demandware site, but also by launching new sites for new brands or new geographies.

In the third quarter, we saw the largest number of new sites launched in our history with 72 net new sites bringing the total number of live sites to 517. The new site metric highlights a key benefit of our cloud-based model and is an important component of our land-and-expand growth strategy. Customers can launch sites quickly minimizing operational risks and costs. This is great for them, particularly with the holiday season right around the corner. It is also great for us because customers can launch sites with little to no involvement from, or cost to Demandware. If the site is successful, our customer’s revenue and our revenue both grow together.

This quarter, we saw a number of customers expand internationally including Butlers, a German retailer selling home accessories and furniture, who launched sites in the U.K. and in Spain. Starbucks, which expanded into France, Germany, and the U.K. and Canada. And we are very excited that Clarence launched a new site in China. Clarence is the first Demandware customer to run on our newly-deployed infrastructure in Hong Kong. We also had customers such as New Balance, Quicksilver, and Guthy Renker roll out new brands this quarter.

In terms of new live customers, we ended the quarter with 137, up from 124 last quarter, a 51% increase from September 30th, 2011.

I want to highlight a few of the leading retailers and brands that launched new initial sites in Demandware Commerce during the last quarter. Pier One Imports launched in Demandware during the quarter. Today through the power of Demandware commerce, brands and retailers like Pier One can capitalize on the vast multichannel opportunities created by the convergence of off-line and online retail; something that was only talked about just a few years ago. Pier One consumers can now buy online and pick up in the store, buy online and return to the store, and even shop online while in the store. We are looking forward to working with Pier One as they continue to execute their multichannel strategy.

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