Cvent's (CVT) CEO Reggie Aggarwal on Q1 2014 Results - Earnings Call Transcript

| About: Cvent, Inc. (CVT)

Cvent, Inc. (NYSE:CVT)

Q1 2014 Earnings Conference Call

May 14, 2014 4:30 PM ET


Reggie Aggarwal – Founder, Chief Executive Officer and Chairman

Pete Childs – Chief Financial Officer

Chuck Ghoorah – Co-founder, Executive Vice President-Sales and Marketing


Jennifer S. Lowe – Morgan Stanley & Co. LLC

Greg E. Dunham – Goldman Sachs & Co.

Brendan J. Barnicle – Pacific Crest Securities LLC

Michael S. Huang – Needham & Co. LLC

Tom M. Roderick – Stifel, Nicolaus & Co., Inc.


Good afternoon and welcome to the Cvent First Quarter 2014 Financial Results Conference Call. All participants will be in listen only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. Please note that this event is being recorded.

I would now like to turn the conference over to Pete Childs please go ahead.

Pete Childs

Thank you, very much. Good afternoon everyone and welcome to Cvent’s financial results conference call for the first quarter of 2014. This is Pete Childs Chief Financial Officer of Cvent with here today is Reggie Aggarwal CEO of Cvent, Chuck Ghoorah, our Executive Vice President, Sales and Marketing. After the market closed today, we issued a press release with details on our first quarter performance. This can be accessed on the Investor Relations section of our website at

During today’s call, we will make statements related to our business that may be considered forward-looking under Federal Securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date.

We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issued today. Further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in the Safe Harbor statements included in our earnings press release as well as our most recent filings with the Securities and Exchange Commission. Also during the course of today’s call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release.

Finally, at times in our prepared comments or in responses to your questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. This call is being recorded and a replay will be available following the conclusion of this call.

And with that, let me turn the call over to Reggie for his prepared remarks.

Reggie Aggarwal

Thanks, Pete. And thanks for joining us on Cvent’s earnings call for the first quarter. We are pleased to report a strong start to 2014, demonstrating our ability to achieve strong revenue growth and profitability, while continuing to invest in our future growth. With continued business momentum and strengthening leadership position in the marketplace, we remained very optimistic about the large opportunity ahead of us. Our confidence is also reflected in our increased revenue and profitability guidance for the year, as Pete will describe in a moment.

Total revenue was $31.4 million, a 29% increase from the first quarter of 2013 and above the high-end of our guidance range. We also exceeded guidance from a profitability perspective with adjusted EBITDA of $3.5 million and non-GAAP earnings of $0.06 per share. Upside to these profitability metrics was primarily due to our better than expected revenue performance in the quarter, a slower hiring ramp early in the quarter as well as the reversal of sales tax accruals that we expected later in the year as Pete will later explain.

We’re excited about our leadership position in the event and meetings marketplace. We aimed to transform the $565 billion meetings and events industry, by leveraging technology base solutions to streamline processes and improve efficiencies and effectiveness throughout the meetings and events value chain. Around the front line of this change as we work with all types of entities to simplify and enhance our meetings and event experience.

Our land-and-expand strategy, drives our growth in multiple dimensions as we add new customers as we broaden and deepen relationships with existing customers. At the same time we’re able to realize powerful network effects as meeting and event planners and hotels and venues increasingly benefit from each others participation on our platform.

Looking at our first quarter, we’re excited to see momentum continue in both the platform subscription and the marketing solution side of our business. As you all recall, we have two sources of revenue; first is platform subscription revenue that we earn by selling our technology solutions to meeting and event planners. Second is market solutions revenue that we generate by helping hotels and venues market their property, managed group business lead flow via our Cvent supplier network.

Platform subscription revenue was $21.7 million in the first quarter, up 27% compared to a year-ago and marketing solutions revenue with $9.7 million, an increase of 34% from last year.

Let me provide you with some additional color on how some of our customers are benefiting from our solutions platform. We continued to gain momentum with our enterprise level strategic meetings management solution, which helps meeting planners collaborate with the CFO suite, our large enterprises.

Our solutions help CFO’s manage meeting expenditure, insure policy compliance and increase efficiency especially for internal meetings conferences, incentives and trainings. During the first quarter, we signed a number of new Strategic Meeting Management accounts from the Fortune 1000 including Gulfstream, Polycom and Protective Life Corporation.

In addition, we closed a Fortune 100 telecommunication’s company, a Fortune 200 information technology company and a Fortune 300 hotel company. Many of our new SMM customers also licensed other solutions with the Cvent platform, which is a survey and mobile app offerings. We continued to enjoy out historical strong renewal rates across our enterprise, with particularly high renewal rates among our SMM customers.

In the first quarter, we saw SMM renewals with customers such as Biogen Idec, Sunovion Pharmaceuticals, National Grid and the National Education Association with many of these clients increasing their usage of Cvent and expanding the number of Cvent solutions they use. For example, Avnet, a Fortune 500 company was already in event and survey customer for over nine years. So when it came time to centralize their meeting, planning processes, our SMM solution was a natural choice.

With respect to our mid-market event management solutions, in the first quarter we signed new subscription agreements with Core Capital Partners, the University of Southern California, Wasserman Media and Plexus Worldwide.

Many customers are foregoing manual processes to leverage our platform solutions. For example prior to Cvent, Plexus, a worldwide marketer of health and wellness products was using a combination of home grown software and manual processes to manage their events, including an annual conference with over 2,000 attendees.

As a fast growth organization, Plexus expects that their conference will triple in size this year and realizing it in an automated, multi-function solution that could scale with their growth. Plexus sought out an integrated platform that covers everything from email marketing to online registration to attendee check-in to name badge printing and advanced reporting. They will also be able to leverage our mobile apps capabilities and social wall technology to enhance social interactions and engagements at their events.

We also renewed or expanded relationships with many of our diverse existing customers including Illumina, the American Cultural Society and Tableau Software. Tableau for example leverages Cvent to manage their annual user conference and registration of training classes for almost 10,000 Tableau software users. Cvent’s ability to offer customers like Tableau and Plexus robust APIs that provide deep integration with their existing CRM and ERP systems allows us to be closely aligned with their broadest strategies.

We continue to see strong interest and increasing demand for CrowdCompass as planners recognize the deeper social engagement of that mobile apps tend to create. As attendees of large events and conferences have come to expect the convenience of mobile apps at their events that they attend the event mobile apps are moving from nice to have to a must have technology for their planners. And we are perfectly positioned to capture a large portion of this huge market that currently is left and 5% penetrated.

In the first quarter, we signed new mobile app customers include Hewlett Packard and the Choice Hotels Owners Council. We also continue to increase the value provider of our clients by cross-selling our CrowdCompass mobile apps to existing event management customers, such as the American Chemistry Council, Grand Canyon University and Alcatel-Lucent. Alcatel-Lucent has been using Cvent’s Event Mobile solutions at their Headquarters in France.

When Alcatel’s U.S operations had a need to take up their customer events mobile, expanding the relationship with Cvent and CrowdCompass’ mobile apps was an easy and obvious choice. On top of these transactions, numerous existing customers renewed their CrowdCompass descriptions, including Experian, the Institute of Internal Auditors and TESSCO Technologies.

Looking now at our solutions for hotels and venues, our marketing solutions again delivered strong growth in the first quarter as we signed many new customers, including several international brands during the first half quarter.

Just to give you a flavor, these include nine TRYP by Wyndham hotels in Europe and Brazil, the Mandarin hotel in Hong Kong and the Oberoi in Dubai. From a domestic perspective new clients include the Trump Hotel Collection, the Grand Cascades Lodge and Revel Resort in Atlantic City.

Our track record of singing convention and visitors’ bureaus also represented both international and domestic wins with bureaus representing Switzerland, Mexico and Singapore, outside the U.S. as well as Detroit and Fort Collins within the U.S. We also signed significant renewals from Atlantis, Crowne Plaza, and Fairmont Raffles Hotels International, as well as convention and visitors’ bureaus representing Houston and New Orleans.

In addition to selling ad space on our Cvent Supplier Network, new business in the first quarter included further deals for new ad types, such as our suggested ads, which offer meeting planners with additional venue options at the time they’re submitting RFP request. Hotels are eagerly signing on for this service and we are driving improvements to deliver a higher number of qualified RFPs to our hotel and venue customers.

Le Meridien, for example, is a brand that planners sometimes do not associate with a star hotel. Le Meridien not only chose to market with Cvent through diamond plus ads to promote an association with the Starwood brand, but it’s leveraging our suggested ads to help further drive RFP traffic. Reflecting the opportunities we see for our marketing solutions, we held our first annual Group Business Forum last month in Washington, D.C. with over 400 hospitality executives from around the world in attendance. This event provided an opportunity for Thought Leaders to come together to understand industry technology trends and to network with one and one.

At this forum, we also conducted our one-day Cvent certification program with certified hoteliers to better respond to incoming Cvent leads and to utilize best practices. Given the success of our first forum for hotels and definitions, we plan to make the Group Business Forum an annual event.

So stepping back to look at the broader picture, we have a very large market opportunity before us and we are well positioned to continue to take a disproportionate share. In the fist quarter, we continue to execute our strategic plan as we made investments in sales and marketing to broaden our reach and a product development to bring new and improved solutions to market, while at the same time maintaining our record of delivering healthy profitability.

From a sales and marketing perspective, in addition to growing our team domestically, we’ve recently focused on growing our team internationally in order to expand our global presence. Our new office in London continues to show tremendous potential, as it gives us boots on the street for sales in the UK and Europe. In addition to targeting Europe out of London, we continue to target Asia through our India office, which is really exciting to us since our strong India office will give us competitive advantage and will likely make our business more profitable.

We also continue to invest in product development including Enterprise Event Marketing or EEM. As I mentioned in our last call, EEM will bring together a number of our products including event mobile apps, event management, marketing, web surveys and our integrations to provide Chief Marketing Officers of larger organizations the ability to increase attendance and engagement with their event attendees, as well insight into the effectiveness of their event spending.

Similarly, we continue to develop our Audience Management Platform through our CrowdTorch brand. That creates an end-to-end solution for consumer events by combining ticketing, mobile, fan engagement, website, social media and deep analytics. Our investment and innovation related to event mobile apps, and mobile solutions in general will continue at a rapid pace. Major investments in product usability resulted in new standard of efficiency and effectiveness for our over 200,000 users.

We look forward to sharing deeper insights regarding the strategic direction of our platform next month at the meeting and events planner conference that we host called the Corporate Meetings Summit. We’ve been asked over the past 18 months why we wouldn’t take down profitably by investing more in order increased growth. We’ve been very steadfast in our answers that we believe it’s most important to strike the proper balance between growth and profitability.

As a company, we feel that we’ve been successful in that regard, having been good stewards of capital considering our track record over the past dozen years. This continues to be reflected in our results. We’re off to a strong start in 2014 with revenue and profitability results that exceeded expectations.

We continue to see momentum from both the Platform Subscription and Marketing Solutions part of our business, as we realize the powerful network effects inherit in our business. And we are optimistic that we’ll continue to gain momentum as we progress through the year. We remain very well positioned to capitalize on the opportunities ahead of us that will continue to generate profitable growth and drive shareholder value over the long-term.

Now let me turn over the call to Pete for more color on our financial results.

Pete Childs

Thanks, Reggie. Now, I’ll first walk through the details of our financial performance for the first quarter and then provide our guidance for the second quarter of 2014. Total revenue for the quarter was $31.4 million, an increase of 29% from the first quarter of 2013 and above the high-end of our guidance with better than expected performances from both Platform Subscriptions and Marketing Solutions. Within total revenue, Platform Subscription revenue was $21.7 million, an increase of 27% compared to a year ago. And Marketing Solutions revenue was $9.7 million, an increase of 34% compared to a year ago.

Now I’ll discuss our results on a non-GAAP basis. A reconciliation of GAAP to non-GAAP results has been provided in our press release issued after the market close today. Non-GAAP gross profit in the first quarter was $22.4 million, resulting in a gross margin of 71%, a decrease from 76% in the first quarter of 2013, but in line with our full year expectation of approximately 70% as we continue to make investments to support the long-term growth of our business. Longer term, we remain confident that we can generate around 80% gross margins at the time.

Turning to operating expenses, non-GAAP sales and marketing costs increased 24% from a year ago as we continue to focus on investing in sales and marketing as we scale our business globally, and capitalize on the large, underpenetrated opportunity ahead of us. We are well positioned to continue our expansion around the globe with our India and London offices, as Reggie mentioned.

R&D grew 26% on a non-GAAP basis from the first quarter last year as we continue to invest in product usability enhancements and the development of new products. Non-GAAP G&A costs increased 14% from a year ago as we support the on going scaling of our business, as well as incremental costs associated with operating as a public company, partially offset by the reversal of sales tax accruals.

Non-GAAP operating income was $1.5 million or 5% of revenue, consistent with non-GAAP operating income of $1.5 million or 6% of revenue a year ago. Adjusted EBITDA of $3.5 million represented an 11% adjusted EBITDA margin and compares to adjusted EBITDA of $3.3 million or a 13% adjusted EBITDA margin in the first quarter of last year, reflecting our focus on investing in our long-term growth.

Adjusted EBITDA was above expectations in the quarter primarily due to revenue that was above the top end of our guidance, the reversal of the $500,000 sales tax accrual that had been anticipated later in the second quarter, and hiring that was weighted towards the end of the quarter. Non-GAAP net income was $2.5 million in the first quarter or $0.06 per share, an increase from $22.1 million or also $0.06 per share in the first quarter of 2013.

In addition the factors that benefited adjusted EBITDA, GAAP and non-GAAP net income also benefited from the lower taxes due to disqualifying dispositions of employee stock options. On a GAAP basis, operating income was $600,000 in the first quarter of 2014 and GAAP net income was $1.6 million or $0.04 per share, an increase from $300,000 or $0.01 per share a year-ago.

As we’ve discussed in recent quarters, we continue to invest in the tremendous opportunities that we see before us in the marketplace, but plan strategic investments and technology, sales and marketing and public company costs that have resulted in continued positive margins but below margins that were below historical highs.

But the healthy return on these incremental strategic investments we plan to continue applying resources to support our growth, while maintaining healthy profitability levels at the same time we remained confident in our ability to drive leverage in our model and remain committed to our long-term model that cause for delivering adjusted EBITDA of approximately 25%.

Turning to our balance sheet, we ended the first quarter with cash, cash equivalents and short-term investments of $201.7 million compared to $157.8 million at the end of the fourth quarter. Note that in addition to operating cash flows of $23.5 million, cash, cash equivalents in short-term investments also reflect net proceeds of approximately $24.8 million from a secondary offering completed in January.

The deferred revenue at the end of the first quarter was $70 million, an increase of 31% on a year-over-year basis and an increase of 17% from the fourth quarter. This is consistent with historical deferred revenue patterns, but a small sequential increase in the first quarter, quarter-to-quarter decreases in the second and third quarters and a strong sequential increase in deferred revenue in the fourth quarter and we anticipate this pattern will continue.

Now, let me turn to our financial outlook for the second quarter and full year 2014. with a strong start to the year, we are increasingly confident in our business momentum and execution as reflected in our increased guidance. But first, I’d like to remind you that in the second and third quarter of last year we had unusually high, non-recurring marketing revenues from new ad types that were delivered in prior quarters. This created year-over-year seasonality that we do not believe reflects our normal revenue linearity.

Given that revenue for suggested ads were based on click throughs, revenue for these ad types are not recognized ratably making the timing less predictable than subscriptions revenue, which represents all of our platform subscription revenue and the vast majority of our marketing solutions revenue.

Additionally, our GAAP and non-GAAP net income expectations are expected to benefit from lower cash tax assumptions for the year to allow for disqualifying, dispositions of employees stock options as we saw in the first quarter.

With that backdrop looking at the second quarter of 2014, we expected to generate revenue of $33.3 million to $33.7 million representing an increase of approximately 24% to 25% from the prior year. We expected adjusted EBITDA $1.6 million to $2 million, note that we expected adjusted EBITDA to decline from the first quarter due to a number of factors including the $500,000 sales tax accrual reversal at a positive impact to adjusted EBITDA on the first quarter, as we’d expected in the second quarter.

Also, the full expense impact from hiring that accrued in the first quarter, seasonally heavier marketing spend associated with our two major annual user conferences held in Q2. Marketing expenses associated with the seasonally high number of trade shows and product seminars and continued investments in our business.

Based on our current investment plans, we expect adjusted EBITDA to increase sequentially in the third quarter and anticipate that the sequential increase from third to fourth quarter will be much more meaningful.

From a net income perspective, in the second quarter we anticipate a non-GAAP net loss of $400,000 to breakeven or a loss of $0.01 to breakeven per share based on an estimated $40.7 million basic, average weighted shares outstanding.

Adjusted EBITDA and non-GAAP net loss guidance for the second quarter excludes stock-based compensation expenses of approximately $1.2 million and acquisition-related cost of $400,000. Adjusted EBITDA excludes these expenses as well as interest income of approximately $300,000 a cash tax benefit of approximately $500,000.

And depreciation and amortization expenses of approximately $2.8 million. Excluding these adjustments for the second quarter, we anticipate a GAAP net loss of $2.3 million to $1.9 million or a loss of $0.06 to $0.05 per share, based on an estimated $40.7 million basic average weighted shares outstanding.

Looking at the year as a whole we anticipate full year revenue in the range of $138.7 million to $140.3 million, an increase from our prior guidance, representing approximately 25% to 26% growth. And an increase of $800,000 in the mid point from prior year guidance of a $137.8 million to $139.6 million, reflecting our first quarter over performance and continue momentum we see in our business overall.

We expect 2014 adjusted EBITDA to be in the range of $13.6 million to $14.6 million, an increase from our prior guidance, which consistent with prior guidance represents an adjusted EBITDA margin of approximately 10% at the mid-point of our guidance. Full year adjusted EBITDA guidance considers the catching up of expenses that shifted from the first quarter hiring and the reinvestment of some of our quarter upside into sales and marketing and technology.

For the year we expect non-GAAP net income of $400,000 to $1.6 million, an increase from prior guidance. Based on an estimated $42.7 million diluted average weighted shares outstanding, we anticipate non-GAAP net income to range from $0.01 to $0.04 per share. Our non-GAAP guidance for 2014 excludes stock-based compensation expenses of approximately $5.71 million. Acquisition related costs of approximately $1.4 million and office relocation cost of $750,000.

Adjusted EBITDA excludes these costs as well as interest income of approximately $1.1 million, cash taxes of approximately $2 million and depreciation and amortization expenses of approximately $12.1 million. Excluding these adjustments we anticipate a GAAP net loss of $7 million to $5.8 million or a loss of $0.17 to $0.14 per share, based on estimated $40.7 million basic average weighted shares outstanding.

In summary, we are pleased to deliver a strong start to 2014 with revenue and profitability that were above our guidance. Our execution is delivering business momentum that we expect to further reinforce, as we progress through the year. As we expanded our market leadership position and continue to deliver accommodation of growth and revenue and profitability.

Operator with that we can now open the call to questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Jennifer Lowe at Morgan Stanley.

Jennifer S. Lowe – Morgan Stanley & Co. LLC

Great thank you. Reggie and Pete, you both made a illusion to hiring in the first quarter being a little bit slower than what you’d expected. And I guess the question I had there it’s almost two fold; one, your hiring plans for the year is less or was this just lower than expected, and then sort of related to that you mentioned it was backend loaded, where you caught up by the end of the quarter, are you still running a little bit behind on the hiring plan for the year?

Reggie Aggarwal

Yes, Jennifer this is Reggie, good question. So it was a little slower than expected. We do plan on catching up throughout the year. So that is kind of the first question. In terms of backend loaded, a couple of things we normally start our largest class in Q3. And so we have our annual summer hiring, and so that tend to be in Q3, and so that’s why it’s a little more back loaded and then just some other hires that are on beyond frankly our recent college grad which tend to make the most of that Q3 hiring. It tends to be later part of Q3 and Q4. So we do plan to make up for it and we are little behind, but we are getting back on track in terms of our hiring.

Jennifer S. Lowe – Morgan Stanley & Co. LLC

Okay. And then, just one more for me. You gave the example of the customer that had been sort of a long-term. Is that management customer and had migrated up to the strategic meetings management product?

And I was just curious looking at your SMM space at this point, how many of those were really upsell from event manger versus new customers acquired directly with SMM and as part of that to as you migrate customers up from event management to SMM? How does that discussion happen from a pricing perspective? Because of that’s a pretty uplift I’m just curious how customers go through that process of potentially quintupling or more, how much money they’re spending having that depression kind of take place.

Chuck Ghoorah

Hi, Jennifer. It’s Chuck Ghoorah. So in the script Reggie had broken down SMM discussion into customers who were new logo example. So and then the other one tail end of that part of the discussion were the upsell. So Avnet that you refer to is kind of an upsell example. So when you see the script they will be cleanly broken down between the two new logos verus the up selling. So that’s the answer I think to the first question. But these were just illustrative examples from the quarter, it obviously doesn’t incorporates everything we close in the quarter, but just to give you a sense.

Reggie Aggarwal

Yes. And then, in terms of how we kind of have a discussion with them which is kind of your second question. So a lot of times the dip their toe in the water and they want to use our mobile app or generally our event solution for event registration. Because if they – a pinpoint they feel immediately. So we generally a lot of times not generally but a lot of times you come in with one of our other solutions which says about event management or mobile solution, and then once they feel comfortable and they start realizing the efficiency they get and the productivity get from that.

Then they wanted to saw have a deeper discussion with getting the whole enterprise on something, which then gets the kind of meaning spend. And to make sure they’ve compliant to some of the other broader things. Avnet you saw it look unfortunately nine years before they made that SMM decisions because they are customer for a long time, but a lot of it’s just where the industry moving in last several years, is they’re starting to realize that again spend 25% to 30% of the market the CMO’s budget on meeting and events 1 to 3% of your pipeline so in our targets for the CFO and that’s why we’re starting to see a lot more moment in the estimate space,

Jennifer S. Lowe – Morgan Stanley & Co. LLC

Right. Thank you.


Our next question comes from Greg Dunham with Goldman Sachs.

Greg E. Dunham – Goldman Sachs & Co.

Yes. Thanks for taking my question. First question on the suggest ad types you highlighted Le Meridien as an example customer that was trialing it, and had good success with it. Can you talk about how broadly some of these customers are using these new ad types and maybe the types of return that are getting on the spend, when they do make these decisions.

Reggie Aggarwal

So I think, what we’re seeing is we’re getting a pretty broad acceptance of them again it’s still early in the game because we’re still big enough if you add types in terms of the pricing and we’re getting a lot of uptick on them. So we’re getting more aggressive in how we price them. It’s a tremendous benefits you just take a step back what happens is that when I plan, since our (indiscernible) and they get looks like six hotels respond then we’ll show the seventh one as an example. And when they get picked up it could make a huge impact in terms of wining business that they literally didn’t get considered.

So I think we’re getting little bit more aggressive on the pricing there we seen a broad acceptance of it. But we’re still working through the seasonality of it because this is still new to us. It hasn’t been a year, but we spent a successful lot of adoption, pricing has increased and there is a huge demand, is really the big thing. And it’s incremental above our Diamond Plus listing, so again we like that.

Pete Childs

Greg, Pete here. One thing I want to add to that is, we talked about this new script is that there is variability in terms of revenue recognition associated with this product and we saw high revenue recognition last year. We’re not seeing it high this year. Reggie mentioned the seasonality, we’re still gathering history here and seasonal trends are not becoming not perfect here yet, put it that way.

Greg E. Dunham – Goldman Sachs & Co.

Okay then the other question, I have…

Pete Childs

Still a small part of our revenue by the way. So it’s not a huge part of variability.

Greg E. Dunham – Goldman Sachs & Co.

The other question I had and Reggie you highlighted in the script, you brand this business profitability for many years right and this year was kind of an investment mode, right, up the investment to drive stronger growth. When you think about that decision, what kind of drove that decision, kind of remind us then, when we think about kind of the investments plans going forward, should we just think about margins as current base this year is like our new base they would offer or this was abnormally low, can I say?

Reggie Aggarwal

Yes, it’s a good question Greg, so if you recall during our road show and during our secondary, we were pretty clear with investors that we had a 20% to 25% adjusted EBITDA, historically close to eight years to 10 years. So we’ve shown that we are good stewards of capital. We saw a big opportunity and we had frankly underinvested historically little bit and particular in technology and R&D and some other areas.

So what we decided to do is that we thought that it made sense to put more because we saw a greenfield open space. So we said we take our numbers down to about 10%, we didn’t do that in the third quarter because we had 18% and just because frankly we are so busy with the IPL, but then it went down to about 7% in the fourth quarter of 2013. So that’s when we first really started to put some investments and because making up for the third quarter some expenses pushed to the fourth.

But we’re going to continue to be about a 10% is what, we think this year as we continue to see opportunity, we’re going to continue to invest because we have $202 million in the bank right now or a couple of $100 million and it’s getting 0.1% interest we think it makes a lot more sense to invest that money because again with the market leader companies are absolutely moving the technology in the space and kind of that will we could take up our EBITDA when we want.

But we still feel like we’ve struck that balance between the two, but so the bottom-line is that we planned to keep, investing more than historically we have because we see the opportunity and it’s just investing in R&D, international mobile, the areas that we told our story just continue to make sense because we want to continue to remain the market leader.

Greg E. Dunham – Goldman Sachs & Co.

Okay thanks guys.


The next question comes from Brendan Barnicle of Pacific Crest.

Brendan J. Barnicle – Pacific Crest Securities LLC

Thanks so much guys. One of the things I was surprised on the quarter was nice upside to deferred revenue and cash flow. Was there anything in particular, it was driving the upside in the deferred revenue side?

Reggie Aggarwal

Not for sure, Brendan we talked about this more in the past and that it’s tough to look at deferred revenues in the change of deferred revenues as an indicator of calculated bookings. Just because the nature of the way that we build, we build some clients on a quarterly basis, build some on an annual basis and sometimes and particularly whether hotel clients, there are large contracts that might come in December one year and in January the next year. So, on a short-term basis, it’s very difficult to look at changes in deferred revenues and draw definitive conclusions from that. But there has nothing changed in the business, overall.

Brendan J. Barnicle – Pacific Crest Securities LLC

Okay, great that’s helpful. And then just following up a little bit on Greg’s question on the marketing solution, I mean overall that was better than in modeling and expecting. You call that the one product. Is there anything else on a macro level that was going on in that part of the business that drove that nice upside?

Reggie Aggarwal

No I think in general we had consistent performance in it. I think that the new ad types we put out at the end of Q2 last year, so we just again taking time to kind of play those out. But nothing otherwise was continuing to see great demand. The area that we like most is that our is internationally would start to pick up more customers because our RFP traffic if you recall, we did $6.5 billion in 2013.

If you kind of look a year ago what our traffic was it’s grown and a lot of that because we opened up our London office up, we are getting a bigger international brand. We are going public and the fact is that’s probably the area that probably helped us a little bit. But in general, it’s still kind of steady as she goes in a good way. We have a high growth I should say steady as she goes. But otherwise no unusual patterns except that we are continuing to increase our lead in that space.

Brendan J. Barnicle – Pacific Crest Securities LLC

So new ad types international or to. Do you think that might have been the contributor there?

Reggie Aggarwal

Yes. I think those are fair, but it’s really nothing major stands up, but because those are good across the Board. But I think those are two areas that I think that are newer for us, so they were helpful.

Brendan J. Barnicle – Pacific Crest Securities LLC

Great, thanks a lot guys.


The next question comes from Michael Huang at Needham & Company.

Michael S. Huang – Needham & Co. LLC

Thanks very much. Hey, guys. Just a few questions for you, I was wondering if you were to look at across some of your nice SMM wins, who you’re typically replacing and who did you compete with? And at the end of the day, what’s your general consistent catalyst that was driving these customers to make a decision to invest now?

Reggie Aggarwal

Yes. So Mike, good question. So here is a – the first thing is, is that, again the biggest competitor we have is again Greenfield. We have just probably – definitely under 10% penetration on the Global 5000 with any SMM solution. So that’s number one is, is that it’s a lot of Greenfield. And even within that 10% I’m going to say that almost the entire set that’s in that 10% that have a solution. It’s probably like 6/% or 7%. They haven’t even been 50% penetrated within those.

So a lot of room within the ones that have been penetrated and plenty of room that haven’t been. So that's kind of the first thing. So when we won customers, the majority of them were Greenfield. They use again a hodge-podge of systems internal or manual which is most of them. And so that was the majority of the win. We did have some competitive wins. Again I think we feel comfortable saying that we have not had any one of our customers convert to another competitor in the last three or four years, zero. Maybe it’s one, I am just going to use that as a just to be careful, but otherwise there isn’t one that we can recall that’s converted.

But we continue to take from our competitive set customers. We mentioned six companies on the earnings call, but there are more than six that we closed. But the fact is we are still continuing to see great momentum. We are definitely considered the market leader because we do have price strength in there.

And we continue to see a lot of opportunities, because it’s Greenfield and again companies will move toward an estimate solution because it represents 1% to 3% of our top line revenue, 25% of their marketing stand and they need to get visibility, they need to get effectiveness. And they need to make sure that it matches policies and compliance. And so we know overtime that’s the vast majority will convert to an SMM solution and we’re positioned the best in that area.

Pete Childs

I guess, I’ll just add onto that, as you said both of the wins are greenfield wins, not just to trade off between competitors but when we do win a couple of the reasons we win over the competition even if there is an incumbent competitor in there, is that our RFP response rate through the Cvent supplier network is so much better and higher. The hotels have embraced it more. They are trained on it and they are responding faster. So we hear that feedback from clients.

It also depends on for example the functionality that we have, the breadth and depth of functionality, for example we now have pharma companies, be able to report on the Sunshine Act. So we have something called HCP spend that helps them determine how much we are spending on healthcare providers and which is a requirement of that particular industry.

If I had to sum it up, the industry, the customers, the prospects are really recognizing that we have the true integrated platform that they’re able to come onboard with us and maybe they swallow the whole platform out of the gate or they can recognize, they can grow into the platform over time whereas most of our competition either has a point or [nichey] (ph) kind of aspects to it, and not the entire platform as well as the fact that they may make claims but it’s not integrated. So those are the main reasons why we went over the competition.

Michael S. Huang – Needham & Co. LLC

Got you. And then – I apologize if I missed this. So, when you look at the SMM activity in the quarter, obviously pretty solid here. Is there anything from a seasonality standpoint that benefits Q1 over other quarters? Or should we be seeing SMM activity continue to ramp, aligned with, perhaps a – some of the market trends, plus a ramp and/or more aggressive focus on your half to go after that segment?

Reggie Aggarwal

No I wouldn’t say there is a seasonality to bringing on SMM customers. Take a look at the pipeline overall, came through the second quarter, I see nicely, logos across any number of industries pharma, tech business services. I think in general rather than a quarterly seasonality, if you just look at these sort of macro trend, I think there is – the industry is recognizing there is a greater need for visibility and to meeting spend and ROI among these larger enterprises.

So we are just noticing an increase in awareness that they got to be able to shine a flashlight into its opaque spend and that’s really what’s driving it.

Pete Childs

And I’ll say one slight thing is that fourth quarter, you maybe see a little bump because just most companies they do have a bump in their fourth quarter to get some solutions in at the end of the year because of the budgets and stuff. So maybe we see a slight bump there but in general it’s not an event seasonality.

Michael S. Huang – Needham & Co. LLC

Got you. And then my last question, just kind of around the first-ever group business forum for the hospitality industry that you guys hosted. Wondering if you could share with us – I mean is that, do you see that event as more of a driver around lead gen and bookings, or is this a driver, a product road map? How does this benefit the business, both nearer term and then longer term? Thanks.

Reggie Aggarwal

So first, Mike again good question, we want to eat our own dog food which is throw events or organize meetings and events ourselves and I will tell you why because there is nothing better than meeting your people face-to-face. And so let me just kind of everything you said is, why you do it? You do it for obviously building better relationship with your customers and prospects for lead gen, but I’ll tell you, you also do it so to get their feedback direct with the product, but I will tell you, they will give you great ideas for the future because their customers have given you the roadmap and, again, this is all gear towards hoteliers. There were no corporate buyers there or the meeting planners.

But I’ll tell you the other thing is the thought leadership. Cvent is known as the leader in the space. We’re the first one that’s ever organized a conference like this and it was so powerful. We should have invited some of the analysts to come, because they would have heard what people were saying.

People are viewing us as a thought leader and that’s actually what ends up winning the market, because we a strong brand, but this helps increase that brand and that loyalty more and it’s not just building one or two or 20 or 50 relationships. That’s not going to win the war. But I think these kind of conferences is what really shifts because people just see that we’re investing in the industry and we’ll get a lot more out of it than just some extra wins. So we’re going to continue doing it.

Same thing with our Corporate Meeting Summit, which you guys all invited to, which is coming up and that’s with our corporate buyers. We have two simultaneous conferences, one for associations and one for the corporate SMM customers. And, again, that’s basically more than doubled from last year or about doubled from last year. So we gained so much out of it, in thought leadership, brand, product roadmapping and so forth. And it’s important for us to do that.

Michael S. Huang – Needham & Co. LLC

Great. Thanks, guys. Appreciate it.


Our next question comes from Tom Roderick at Stifel.

Tom M. Roderick – Stifel, Nicolaus & Co., Inc.

Hey, gentleman, good afternoon. So, Reggie, let me ask just a question around the event marketing product and I was hoping you can talk a little bit more about timing of when we should expect to see that out, availability for the marketplace and how you’re thinking about supporting it from a sales standpoint? Do you think you’ve got the proper sales structure underneath that that they can sell sort of as it’s? Do you need to bring new heads on for that? Is it a different type of sale? Just help us understand how you expect to sell that and do you have any loose thoughts on how pricing might compare to typically event management would be great.

Reggie Aggarwal

Yes, Tom, good question. So, we introduced the EEM last quarter and we hadn’t even built it out. We were just more broadcasting that. This is something we’re investing, we’re building. So a couple of things: first, we just started building it out. It’s an 18 to 24-month process. Even though we’ll see some effect before then, but it just takes time to build out this full platform. But we made some good steady progress and some interesting things that we’re doing, which we’ll actually share at our CMS conference, some of the things we’re looking at doing.

But having said that, one, we hired a leader in that area who spent a lot of time doing EEM. So that’s kind of important to bring that first leader on. We’re making those investments and it’s becoming core part of our fabric as we built out our product. We’re seeing some traction with a large number of, especially tech companies because they’re very aggressive at growing internal user or I should say external user conferences. And I think that we’re getting frankly a lot of feedback. We’re getting some traction. Our product continues to advance. We’re not going to see a major impact on revenue this year from EEM because it takes time to build out.

But what we’re exciting about it is, now we’re hitting the large; call them the Global 5,000 hitting them again from the CFO suite and the CMO suite. Now we’ve had marketing products in the past as you guys know, but this really, really hits the CMO hard in terms of the things that they’re really focused on like ROI and quantifying the fact that they spend 25% of their CMO’s budget on meetings and events, what do we get out of it and how I can increase attendance and engagement, and so forth. So we’ve been able to do that.

So, it’s going to take some time for impact, but it is a combination of existing product integrations, new features, and all that thing takes time to build out. But we’re very confident we’ll be the market leader and it’s got to be a one platform, so that for internal event and large external event, it’s only going to be in one place.

Tom M. Roderick – Stifel, Nicolaus & Co., Inc.

Great. And again, just sort of the sales structure and ability to kind of support that, do you think you’ll need to make further investments in sales and marketing?

Reggie Aggarwal

Yes. So what we’re doing is because of – it is an intricate part of the whole meeting process or platform, we’re not incrementally hiring a lot of new sales people. We’re taking our enterprise team, and if you recall that’s different than our mid-market team. Our enterprise team are more geared towards relationships and enterprise sales versus the more transactional sale, which is our mid-market event solution. We’re taking them and we’re training them to understand EEM and to be able to sell it.

We’ll have resident experts who will go in to also help them, kind of like you will sales engineer, but they will understand the EEM side, and what’s consultive approach on the marketing side. And so we are doing that, but the good news with the EEM is that we’re able to add it to our current sales team, give them another arrow in their quiver to shoot. But it will take some investments, but it’s not a whole different sales team, which is what we like.

Tom M. Roderick – Stifel, Nicolaus & Co., Inc.

Perfect. Thanks. Let me ask one more question, following up on Greg’s earlier question. I think Greg asked about just the general margin structure and investments, and where they’re going. Taking that question up a level, philosophically, how do you guys think about what ought to happen, what your desire is with the top line, as you’re bringing your margins down? Do you think that these investments are sort of designed to build some acceleration into the top line? Is it sort of designed to continue this 25% to 30% growth, longer term? And that’s a level you are committed to? I’m just more or less curious as to the philosophy behind where you are willing to take your margins? And for what expected outcome, as far as growth goes?

Reggie Aggarwal

That’s a good question, Tom. So I think generally, and again, if you recall during the road show in the secondary, a lot of investors and a lot of people asked us why don’t we take our margins down further to focus on growth. That was a large theme of our discussions during our hundreds of meetings with investors over the last six to 12 months. And so we’ve been very, again, steadfast in saying that we want to find that right balance because once a company goes too far in the other way, it builds a culture of not making money. We’ve had a culture of knowing how to make money and profits. But we also recognize that with our IPO part of the reason you’re raising that money is so you can invest.

So we have a couple hundred million dollars cash in the bank. We’ll continue to do some tuck in acquisitions of course, but the fact is that it just makes more sense to invest in our business because we know what kind of margins, which are going to be eventually 25 plus, which is what we’ve done many times in the past. And so, I think the way we do it is a healthy balance between revenue growth and profitability, which is what we think we balanced here.

I think our investments take some time to get the top line growth. It takes some time with these investments especially internationally. You put a little more money in. These acquisitions we bought, for example, they take quite a bit of investment in them, but once you get more mature you invest in the infrastructure, then it starts getting back to very strong margins.

So I think our philosophy is to strike that balance between the two for the next – I can you give you 2014 and likely 2015 because we see a big opportunity. But the good news is we change it if we wanted to. If we thought that was important to take them up or take them down, but I think this is probably the right balance of what we want to do. I can’t predict revenue in the future, but I can tell you we intent to be a high growth company. And so, it’s important to strike that balance, but make sure we continue to be high growth, which I think we’ll be able to do.

Tom M. Roderick – Stifel, Nicolaus & Co., Inc.

Great. Very helpful. Thank you, guys. Nice job.


This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Aggarwal for closing remarks.

Reggie Aggarwal

Thank you again for joining us on our call today. We’re pleased to see our momentum continue with strong first quarter results that exceeded guidance combining robust growth with healthy profitability with a strong start to the year. We’re well positioned to continue with our momentum through 2014 and capitalize on the significant opportunity ahead of us as we’ve transformed the event and meetings management industry.

We look forward to seeing you at our Analyst and Investor meetings we held in conjunction with our corporate meeting summit in June. And look forward to speaking with you again on future calls, thank you.


The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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