Good day, and welcome to the Bazaarvoice Fiscal Fourth Quarter and full year 2014 Financial Results Conference Call. Please note today's conference is being recorded. At this time, I would like to turn the conference over to Linda Wells. Please go ahead, ma’am.
Good afternoon, and welcome to today's conference call to discuss Bazaarvoice's financial results for the fourth fiscal quarter and fiscal year 2014 ended April 30, 2014. I'm joined today by Gene Austin, our Chief Executive Officer and President; and Jim Offerdahl, our Chief Financial Officer.
Following the remarks from Gene and Jim, we'll have a question-and-answer session. Please note that we are simultaneously webcasting this call on our Investor Relations website at investors.bazaarvoice.com. The earnings release with our results for the fourth fiscal quarter and fiscal year 2014 was issued after the market closed today; in addition we announce that we have entered into a definitive agreement to divest PowerReviews to View Point for $30 million in cash.
Please remember that certain statements made during this call, including those concerning the business outlook and guidance, growth plans and opportunities, potential acquisitions, outlook on legal matters, sales execution and our ability to capitalize on our opportunities are all forward-looking statements. Forward-looking statements are subject to a number of risks, uncertainties and assumptions that are described in our SEC filings, including the Risk Factor section of our Form 10-K for the fiscal year ended April 30, 2013; our Form 10-Q for the third fiscal quarter 2014; and our form S-1 filed with the SEC on July 12, 2012, as well as other documents that we may file with the SEC in the future.
Should any of the risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, actual results could differ materially and adversely from those anticipated or implied in these forward-looking statements.
In addition, forward-looking statements are based on currently available information and we undertake no duty to update this information. Additional cautionary language regarding these forward-looking statements is further described in today's press releases.
On April 24, 2014 we entered into a joint stipulation with the US Department of Justice, to resolve the DOJ’s claims in the antitrust action challenging our 2012 acquisition of PowerReviews and together with the DOJ we submitted a proposed order to the US District Court for the Northern District of California, under the terms of the joint stipulation and the proposed order, we are required to divest the PowerReviews business. As a result of this in accordance with the accounting guidelines we have reported results of operations and financial position of PowerReviews as discontinued operations, within the statements of operations and balance sheets for all periods presented. Accordingly, PowerReviews revenues, related expenses and an estimated loss on disposal net of tax are components of loss from discontinued operations in the statement of operations. On the balance sheet the assets and liabilities of the discontinued operations of PowerReviews have been presented as assets held for sale and liabilities held for sale, respectively. The statement of cash flows is reported on a combined basis without separately presenting cash flows from discontinued operations.
Our reconciliation of GAAP to non-GAAP financial measures and selected quarterly financial and operational metrics included in our earrings release presents our revenues, adjusted EBITDA, and non-GAAP earnings per share for continuing operations and discontinued operations separately. These numbers must combine when making comparison with the guidance we provided on our last earning call on March 4, 2014. Please see that the key document posted on quarterly result section of our Investor Relations Web site for additional information regarding discontinued operations.
Some of the numbers that we will discuss during this call will be presented on a non-GAAP basis. Today’s press release, together with the accompanying tables, contains the calculations of these non-GAAP financial measures and a full reconciliation between each non-GAAP measure and its corresponding GAAP measure including the reconciliation of non-GAAP to GAAP operating results from continuing and discontinued operations.
With that, I’d now like to turn the call over to Gene.
Thank you, Linda, and thanks to all of you for joining us today. With today’s call, we will close the books on fiscal 2014 for Bazaarvoice. 2014 was a year of transition in many ways, but I can confidently report that we exit the year much stronger than when we entered it 12 months ago.
Before I begin, let me first give you a quick update on the settlement process related to our Department of Justice litigation. Today, we’ve signed a definitive agreement to sell PowerReviews to Viewpoints for $30 million in cash. The transaction remains subject to the closing conditions specified in the definitive agreement including among other things approval of the transaction by the Department of Justice. This development means that we are now underway to move the PowerReviews asset and some team members to Viewpoints. And we’re committed to a successful transition process.
We have taken a major step for turning our full attention to the large market opportunity we have ahead of us by delivering great innovation, superior client services and improving our overall execution. Jim will cover in more detail the financial impacts of the completed divestiture in just a few minutes. We turned in our best performance of the year in the fourth quarter. Key highlights include our best quarter of year for gross bookings within especially strong quarter from Europe. Overall, great new customer acquisition and impressive number of customer launches and the completion of a very strategic acquisition that should produce immediate pipeline in sales as we head into fiscal 2015.
As a result, we are entering the new-year with momentum on many fronts as we continue to make steady progress in executing our business. A great example was the recent strong attendance at our Summit held in Austin just a few weeks ago. We welcomed a record number of clients in prospects to hear about our new innovations and products and services that are being launched now and over the course of the year. The reaction from the crowd was quite positive and energizing to the whole company. Now let me talk about our specific Q4 results which include the contribution from PowerReviews for comparison to our prior guidance.
Revenue for the quarter was $47.1 million, up 9% from the same period last year and better than our guidance. Adjusted EBITDA was a loss of $5.5 million in line with guidance and improvement from a loss of $6.9 million in Q4 of the prior year. Earnings per share came in a loss of $0.08. During the quarter, our sales performance was the best of the year in terms of both dollars and new customer acquisition. While we had strength in both North America and Europe, I was particularly pleased that Europe produced the best quarter in their history and important milestone in the region where we have invested significantly.
In North America, there was strength across the business, and for the second quarter in a row, the enterprise team produced another good performance. New account acquisition has been a focus in all regions for 2014. And in the fourth quarter, our sales team delivered its highest number of new accounts for the year resulting in fantastic growth in new accounts for 2014. Notable client win and expansions for the quarter include GlaxoSmithKline, Johnson & Johnson, Lennox, Tesco, Argos and Home Retail Group to name a few. Launches for the quarter rebounded nicely at a 114, our beset quarter as a public company in up from 72 in the last quarter. Our net new customer additions were 122 also best for the year and include 36 clients from the FeedMagnet acquisition.
Additionally, we added over 300 connection clients on the Freemium model in the quarter bringing total customers on our network over 2600, which is up approximately 100% year-over-year. Once again the traffic growth, our network was very impressive. Monthly unique visitors average 473 million during the quarter and the content on our network received 55 billion impressions, up over 50% from a year ago. Both of these statistics are clear examples of the value our content of ratings, reviews, questions and answers are to the shopping experience. Media posted a good quarter with 33% year-over-year net revenue growth. During the fourth quarter, we made some changes in some key areas of our media business to position it for long-term success including formally launching an investment on a new media product to be released later this fiscal year that is intended to tap into the data in our network. As we head into 2015, revenue growth remains our top priority. In past calls we have said, we expect our revenue growth rate to reaccelerate. Given the strength of Q4, the launch of new offerings and our overall view of the business heading into this year, we believe we are at or near our revenue growth rate bottom and we are confident our revenue growth rate will begin to accelerate by the third quarter of this fiscal year at the latest. At the same time, we plan to continue to improve our EBITDA and to make progress towards profitability and positive cash flow.
Let me comment on the factors I believe will contribute towards improving our revenue growth rates. First, the market for our solutions today is large under-penetrated as we have mentioned before we estimate we have penetrated less than 10% of the available market for brand in North America. On the international front, the opportunity is with both retail and brand and we believe we plan to build upon our success in Q4 in Europe to drive good growth in both markets this year. Second, we expect to deliver strong growth in net bookings this year. Net bookings the difference between sales and dollar churn are fundamental to improving our growth and overall business execution. We expect our sales effort this year will benefit from many factors including excellent momentum in the last two quarters, investments in sales capacity made in fiscal 2014, three new products to sale in new or existing accounts, improved sales efficiencies and finally international momentum.
Turning to client retention, dollar churn in our core business is improving due to better execution of post-sales processes around implementation and support and a more holistic approach to overall customer satisfaction. We entered fiscal 2015 with visibility into one large customer that was expected to not renew in the third quarter due to customer specific business issues. In the last couple of weeks, we have negotiated with this customer and have decided to allow the customer an early termination of the contract in Q1 in exchange for one-time early termination fee. Even with this non-renewal, we expect to see strong growth in net bookings in 2015. In addition, we have reviewed our top client in detail and do not believe we have any other risk of this magnitude in our client base. Furthermore, we remain confident we have the tools, processes and management in place to reduce churn.
Third, we recently launched three new products that combined have the potential to add significant additional pipeline to our worldwide business and we have plans to roll-out additional products later this year. Let me spend a few minutes on the new innovations announced at our summit a few weeks ago. The launch of Bazaarvoice Curations is a result of our recent acquisition of FeedMagnet that we completed in April. With Curations, brand and retailers can source brand relevant, consumer generated content for more than a dozen of the major social media platforms such as Instagram, Pinterest, Facebook and Twitter that content including photos, videos or social posts can be incorporated directly within the clients’ Web sites or other marketing properties such as photo galleries or brand campaigns. Now along with detailed ratings and reviews and questions and answers, our clients have the ability to enhance the social experience with rich media content that depicts how a product is used in real life with all of the advantages and protections that our moderation and authenticity capabilities provide.
Bazaarvoice product sampling has been beta-tested the clients for a few months and results are quite promising. With product sampling, our clients can quickly set up test market product campaign in which they invite the best customers and advocates to receive free products in return for providing insightful reviews. One of the most exciting applications of product sampling is the opportunity for clients to proactively collect customer opinion about pre-released items which supports more successful launches by activating the consumer voice from day one. And finally, Bazaarvoice Local were soft launched in the second half of 2014 and has produced strong demand. With Bazaarvoice Local national brand and retailers with hundreds to thousands of affiliates or corporate stores can collect and utilize ratings and reviews about the entire experience associated with that store. These service reviews provided valuable feedback for consumers searching for a local provider of a brand or service and can be read directly on the local affiliates’ web sites rather than third-party review sites.
In conclusion well, 2014 was a year transition we entered the year on a very positive note and enter 2015 with momentum. I want to thank our employees and moderators for all their incredible work without in the progress we've made during fiscal year 2014 would not have been possible. Fiscal 2015 is going to be an exciting year for Bazaarvoice and we are off to a quick start with new products, a great customer confidence and a major step towards resolution of our DOJ litigation.
As we look towards the rest of the year I'm confident in our ability to deliver accelerating revenue growth backed by client centric innovation, operational excellence and a great team I look forward to updating you on our progress throughout the year. I'd like to now turn the call over to Jim.
Thank you, Gene. And thank you to everyone who joined the call today. Before I review our reported results for Bazaarvoice continuing operations for our fiscal fourth quarter and full year 2014, let me talk briefly about PowerReviews. The results for which as Linda noted earlier are included in discontinued operations.
As we have previously discussed, after the acquisition of PowerReviews in June of 2012, Bazaarvoice gained significant cost energies primarily via redundant positions. Such as the PowerReviews contributed positive EBITDA and cash flows soon thereafter. For fiscal year 2014 PowerReviews' revenue and EBITDA contributions were $17 million and $8.8 million respectively and on a non-GAAP basic earnings per share basis, PowerReviews was $0.12 accretive for the year.
Please refer to our earnings release tables and FAQs filed with our press release for further information regarding the divestiture of PowerReviews and its impact on various financial information and metrics.
So now I will provide commentary on our reported fourth quarter and full fiscal year 2014 financial performance for our continuing operations which excludes PowerReviews. Accordingly all financial results, business metrics and outlook discussed here after will exclude the impact of PowerReviews from our business for all periods.
For the fourth quarter, we achieved total revenue of $43.1 million and SaaS revenue of $41.9 million, up 11% and 10% respectively year-over-year. Adjusted EBITDA for the fourth quarter improved the loss of $7.6 million from a loss of $9.1 million in the fourth quarter of last year. Our non-GAAP net loss per share for Q4 was $0.11 per share.
Given our divestiture of PowerReviews, we’re modifying our definition of a client. We have two types of clients; those that have recurring revenue are now categorized as active clients. And those who do not have recurring revenue, such as clients on our connections Freemium model are now categorized as network clients.
The number of active clients at the end of Q4 was 1,133, an increase of 28% from a same period a year ago. Annualized SaaS revenue per client in Q4 was $156,000, down 7,000 from Q3 as we had a large number of launches and added 36 Curations clients late in Q4. We continue to expect our annualized revenue per client due to client somewhat in the future, as our launches generally continue to grow and as they continue to add new clients initial pricing as lower than our company average.
We view this as healthy for our network and our business, consistent with our land and expanded approach especially as we introduce new and innovative products such as Curations. Launches were the highest since our IPO coming in at 114 in Q4, up from 54 during the same period last year and an increase as expected from 72 in Q3.
Net new clients of 122 in Q4 were also the highest since our IPO and a significant increase again as expected from 31 in Q3. Our net new clients in Q4 included 36 from the FeedMagnet acquisition. Our Q4 client’s retention rate was 97.2%, better than our average over the last seven quarters. This client retention rate is higher than what we have been reporting to PowerReview clients, which are now excluded from its calculation returning at a high rate than our other clients.
We achieved gross margins of 67.6% in Q4, down 170 basis points from the same period last year, primarily driven by higher hosting costs entire amortization capital and software. We expect our hosting cost as a percent of revenue to moderate somewhat in FY15, despite continued growth in impression volume. Sales and marketing expenses were $22.5 million and represented 52.3% of revenue this quarter as compared to $20.8 million or 53.5% in same period last year.
Sales and marketing expenses were higher on a year-over-year basis due to increases in sales and marketing headcount and higher sequentially, primarily due to higher commissions associated with good bookings quarter that Gene talked about. Going into FY ’15, we expect to gain some leverage as a percent to revenue, as our cost of acquisition should improve somewhat, as we gain sales overhead efficiencies, leverage of larger more experienced sales force and have more products and services to sell, as Gene noted.
R&D expenses were $8.9 million, representing 20.7% of revenue in this quarter, as compared to $7.8 million or 20% in the same period last year. We plan to continue to increase our dollar investment in R&D in FY ’15 especially in the areas of innovation and new products while at the same time we expect to gain some leverage as a percent of revenue.
G&A expenses were $5.2 million and represented 12.2% of revenue in this quarter, as compared to $7.4 million or 19.1% in the same period last year; as we have gained operating leverage in the investments we had been making in the finance and human resource infrastructures. We achieved annualized revenue per average employee of $223,000 in the fourth quarter, up 9% from the same period last year. We ended the quarter with 775 employees, including 14 from PowerReviews which we required in mid-April.
Now let me run through the financials of the full fiscal year 2014. Total revenue was $168.1 million and sales revenue is a $161.3 million, up 15% and 12% respectively from 2013. Net media revenue was $6.8 million for the year. Gross margin increased to 69.8%, up a 100 basis points from 2013, primarily driven by economics of scale on services operation offset somewhat by higher hosting cost in amortization capitalized software.
Adjusted EBITDA was a loss of $21.9 million similar to 2013. It is important to note that the significant synergies that we gained post acquisition of PowerReviews are no longer included in these continuing operations. Going forward as we continue to gain operational efficiencies across the company, we expect adjusted EBITDA to improve significantly in FY ’15. Our non-GAAP net loss per share in fiscal 2014 was $0.34, compared to a loss of $0.35 in 2013.
Now let's turn to the balance sheet. As of April 30, we had $72.6 million in cash and cash equivalents. As we noted in our call last quarter we drew down $27 million under credit line in February to improve our financial flexibility during the remedy stage of the of the DOJ case. And as Eugene mentioned in his remarks we required feedback during the fourth quarter for which we spent $9.3 million required to close that transactions. Upon the anticipated closing of the PowerReviews divestiture transaction, we would receive proceeds of approximately $30 million which would further add to our cash position.
Bottom-line, we were low capitalized with over $72 million in cash and cash equivalents as of April 30. We ended the fourth quarter with DSOs of 81, and improvement from Q3 as expected, as our collections benefit significantly from the high Q3 media and SaaS billings. Our deferred revenue was $56.7 million as compared to $53 million in the third quarter and $53 a year ago. The increase reflects strong cash collections and customer launches in Q4 as well as another strong billing this quarter.
Moving on to cash flow, our cash used from operations was $2.9 million in Q4 compared to $19 million in Q3 and $9.1 million in the same period last year. This significant improvement was expected as we collected a record amount of cash in Q4 primarily from the large Q3 billings and as we spent a lower amount of cash related to the DOJ case. Now I would like to finish with some thoughts regarding our financial outlook.
As we’ve been saying for several quarters we expect our topline revenue growth rates to accelerate during FY ’15. We are now confident that this acceleration will occur in fiscal Q3 at the least and we expect our second half growth rates to be a fair amount higher than the growth rate at the midpoint of our Q1 guidance which I discuss in May. We also expect our adjusted EBITDA to improve in FY ’15 even as we absorbed the impact of not having a profitable PowerReviews included in our results.
We are establishing our full year guidance for fiscal 2015 and expect total revenue to be in the range of $186 million to a $190 million, up 12% year-over-year at the midpoint. We expect fiscal year 2015 adjusted EBITDA loss to be in a range of $14 million to $16 million. Non-GAAP net loss per share is expected to be in a range of $0.32 to $0.36 based on 79.4 million weighted average shares outstanding.
Now turning to guidance for the first fiscal quarter of 2015. We expect total revenue to be in a range of $43.5 million to $44.5 million which represent a 9% year-over-year increase at the midpoint. We expect adjusted EBITDA to be in a range of $6 million to $7 million. Non-GAAP net loss per share is expected to be in a range of $0.11 to $0.13 based on 77.9 million weighted average shares outstanding.
In summary, we’re quite pleased with our financial results and performance for the fourth quarter. We’re well positioned to pursue the large under penetrated market in front of us and expand the value we provide to our clients. Our investments and sales capacity and new product innovation as well as our improved operational capability give us a confidence in our ability to return Bazaarvoice to higher revenue growth rates during fiscal 2015 as well as over the longer term.
Before I turn over the call for questions, I would like to remind everyone that we’ll be presenting at the Morgan Stanley Next Generation Technology Symposium tomorrow June 5th, in New York City.
With that operator please turn the call over to questions.
Thank you sir. (Operator Instructions). Our first question will come from Brendan Barnicle with Pacific Crest Securities.
Brendan Barnicle - Pacific Crest Securities
Thanks so much guys, and thanks for all the detail on this. This will take us some time to work through. But I did want to go back to something, a press release that happened recently about your relationship with Hybris and how you'd be working there. I was wondering if that may extend into any additional work with SAP?
Yeah, Brendan we’ve been doing business with Hybris for some time and we took the time to strengthen that relationship in a more formal relationship, since they are a provider of ecommerce solutions. I think it’s a great relationship and I think it’s an important relationship for us. I can’t speculate on where it might lead for longer term strategic relationship with SAP at this point, but we do see a lot of activity with Hybris and expect it to be an important relationship going forward.
Brendan Barnicle - Pacific Crest Securities
Great. And then Gene, on your comments about gross bookings, you gave some kind of qualitative commentary around it. Do you have any more quantitative in terms of how much that grew, or what that number is, or some other ways that we can measure that success?
No I think the most important points are, that was our best quarter, the year I also was very happy with the quality of the bookings. It was not led by any one large deal; it was a very broad base of transactions. So I can see that very healthy, we did not need a large transaction to have the strong quarter we had. So I think that’s the most salient point of the quarter.
Our next question will come from Jennifer Lowe with Morgan Stanley.
Jennifer Lowe - Morgan Stanley
Great. Thank you. I wanted to dig into the divestiture just a little bit more, and specifically on two fronts. The first question is, you've mentioned a couple times that there was a lot of cost synergies between the two business that's you benefited from. Is there an investment that you're going to need to make to rebuild up any of your infrastructure post the acquisition, or should we assume that the bones of Bazaarvoice are going to be relatively unaffected by the divestiture outside of the products, and you kind of have the run rate staffing you needed? Just a little clarification there would be helpful.
This is Jim, we have our operations in people all in place to handle our business going forward. So no incremental investment required as a result of the divestiture.
Jennifer Lowe - Morgan Stanley
Great. And then just the second question there, this is sort of the official statement, but the talks that you've had with the Department of Justice around this has been out there for at least a few weeks now. Just curious if you've gotten any feedback from customers, or if that's changed at all, either the rate of PowerReviews' customers looking to migrate to Bazaarvoice ahead of this, or just if there's any additional color there on the initial customer feedback, if there is any at this point?
If I want to give you customer feedback I would say that the strength of our quarter and new acquisitions and overall bookings I think is illustrative of the fact that customer see this coming to an end and moving on. And frankly when I was at the summit in Austin it was really not a topic of conversation, the topic of conversation was all the new products we had, the many insights, some of the alpha products if you will that are coming on the pipe that we demonstrated that was really much more of the topic from a customer standpoint.
The PowerReviews customers I have not spoken to any, recently at all. I am sure that they are excited to see closure coming on this process and I think that we have maintained from the entire beginning that the customers are the most important part of this entire process and making sure that this thing ends in a way that is good for all customers involved, both Bazaarvoice and PowerReviews. And I think this definitive agreement is a clear step in the right direction. It adheres to the wishes of the partner justice. It creates a very clear competitor and I think it’s an important step for everybody involved.
Jennifer Lowe - Morgan Stanley
And actually just one quick clarification as well. I think in the press release around the divestiture it mentions that the deal is pending Department of Justice approval, but it sounds like this is also a deal that you and the Department of Justice have jointly submitted to the court. So I just wanted to clarify, is this something that the DOJ has indicated that they would sign off on? I was just a little confused by that statement in the divestiture announcement.
Yes, the Department of Justice, this deal is subject to approval by the Department of Justice, I do not believe it has to go to the court; the Department of Justice will be the organization that approves it. We believe, we have every reason to believe that they will approve it because it adheres very well to the structure and frame and guidance of the final judgment that we agreed with the Department of Justice on, we came to a settlement with the Department of Justice and we believe this adheres to that law. The Department of Justice had 21 days to decide and approve the deal and we look forward to them doing so.
And we’ll move onto to Mark Murphy with Piper Jaffray.
Mark Murphy - Piper Jaffray
Thank you, Gene. You gave us very some encouraging commentary about being at or near revenue growth rate bottom, and I want to dig into your basis for making that comment. Can you clarify, does it feel more like hard visibility due to the recent client adds which are going to inevitably go live near term and start producing revenue. Or is it fairly dependent on improving new bookings in the next quarter or two? In other words, are you pretty confident in projecting forward this improvement in new bookings?
Well, Mark I think there’s a, as I said in my prepared remarks there are number of factors that come into play, so it’s not any one factor, it’s a combination. The sales performance over the last two quarters is quite encouraging and we enter the year with more sales capacity than we had one year ago because of the investments we made in 2014. We have new products for them to offer so we not only have the ability to go acquire new accounts which we continue to believe will be highlight of our business but we also have more to go back and capture more share lost. So I think the new sales side of it is encouraging and I’m excited that Europe took a major step forward, I mean Europe turned in a record quarter in Europe. On the launches side, obviously our revenue recognition begins with launches so it’s a key metric and I’ve seen significant improvement in our operating gains in the launch side, which gives me great hope that we will continue to see that progress over the course of ’15 and if that does that’s going to contribute significantly to revenue. And then lastly on churn, core churn, when I look at the churn of our client base, on the core side, it really looks like we’re making clear progress, you know I’m not declaring complete victory yet on that because that’s always a work in progress but we have definitely made significant improvements, specially compared to a year ago when we had our first discussion on churn with you all on quarterly call, so those three factors are very important to lighting the revenue growth rate ship if you will, and you know I feel like tangible progress is being made on all three fronts.
Mark Murphy - Piper Jaffray
Okay. And Jim, I wanted to ask you, what can we expect regarding the change in headcount for the business once PowerReviews is divested? Are you at a point where you're able to approximate that?
Yes, we will continue to invest on the sales, marketing and R&D side, even though we do expect some percentage leverage on our P&L, so that means we will continue to add folks in those organizations and of course as our customer base grows we’ll continue to add folks in our client services organizations as well. So I do expect us to continue to add people but at the same time we’re projecting improving EBITDA and EBITDA percents as our operation gets more efficient.
Mark Murphy - Piper Jaffray
Just to clarify, Jim. How many employees do you think transfer over to the buyer? How many PowerReviews employees transfer out of Bazaarvoice?
Mark Murphy - Piper Jaffray
About 30 employees. Okay, great. And as well, the one large customer you referenced with the early contract termination and the one-time fee, can you shed any light on what was your strategy in that negotiation, and do you feel that that was a favorable outcome? And also relating to it, how confident are you that that's -- that we could look at that as a one-off situation for now?
As I said in my remarks I do not see any client in our base that, this is a large account, we’ll start with the account, this is a large account that has gone through significant financial issues, including bankruptcy and we have been in conversations with them, we were concerned about their ability to renew several months ago and as we came down to starting to look at 2015 at the same time customer board and we felt it was in everybody’s best interest to go ahead and terminate the agreement early with a termination fee. I feel like we have a good handle on our client base and as I said in my statement I don’t see any client, large client that have this kind of significant risk in our portfolio. Are we going to have churn? Yes. We have churn in our enterprise base like every SaaS company should but all the trend lines are going in the right direction and I know we have talked about two large ones in the last six months or so. And I think we are at the end of talking about these kind of lumpy relationships, both of them are unique, both of them have challenges with them in the beginning as I talked about some of our challenges of overselling, not been able to deploy fast enough. This one have, also happen to have an organization it was financially distressed and so in my opinion we have cleaned that up and as I look forward to churn going forward it’s going to get better and we are going to operate like a SaaS company should. And as I said before I believe that the churn at Bazaarvoice should reflect that of leading SaaS business.
There is no reason why our business model can’t be, have the type of churn rates that we believe are going to be good in the marketplace. Despite that large deal that we just talked about, I want to reaffirm everyone that our net bookings growth for 2015 looks strong. As I said we saw it coming. We have got it built into our plan. It just did happen a little earlier than the third quarter that we expected.
Mark Murphy - Piper Jaffray
Thank you, Gene. One last one, just on the flip side of that equation. You had said you had record bookings, but they were not dependent on large deals in the quarter. So just given the runway that you have, I think with brands in particular, do you sense larger deals that are in the pipeline that could materialize through the course of this fiscal year?
Yes, most definitely. There are definitely larger deals out there but one of the things about Q4 and frankly Q3 which was a good quarter as well is we have broad based client demand and we weren’t dependent on any one deal for our performance. But so the good news about that is that continuous that large deals become good upside for what we are trying to accomplish.
And I would add to that there’s both North America and Europe.
Both North America and Europe right.
Our next question comes from Greg Dunham with Goldman Sachs.
Greg Dunham - Goldman Sachs
Hi. Thanks for taking my question. First off, congratulations on at least getting closer to resolution on the PowerReviews settlement. I guess my first question is when you look at the adjusted EBITDA guidance, especially in light of accelerated revenue growth and the $8 million in EBITDA contribution positive that PowerReviews gave you, that's some fairly significant leverage that you guys are forecasting. Where are those points of leverage on an operating margin -- on an operating line basis? Where are you getting that leverage from? Thanks.
Yes, Greg, this is Jim. Several areas, obviously our revenue growth rates are picking up which helps, okay. We are also gaining efficiencies in our cost of acquisition and sales and our media business is also going to be more efficient in this next year. And in addition and while we do that we are investing as Gene mentioned in a new media product for later this year. We will get it may be a little bit from a percentage standpoint from R&D and maybe a bit from G&A but it’s mainly the revenue growth of sales efficiency. We have got a more experienced and larger sales force now and we have got new products to sale-through that sales force as well and then media business is sized little bit better from expense standpoint.
Greg Dunham - Goldman Sachs
Okay, great. And then just one clarification. You mentioned gross bookings this quarter was a record. Was net bookings a record, or was it close to a record or anything to cause that to be significantly divergent from gross bookings? Thanks.
Net bookings when you look at net bookings, our second half of the year was considerably stronger than our first half of the year. I don’t believe net bookings in Q4 was a record but as you can imagine with gross bookings it was a good performance and consistent with what we saw in Q3 as well. So, the good news about our business is that the second half net bookings picked up quite a bit over first half net bookings which again is emblematic of the better operational efficiency through our management of client base.
(Operator Instructions) Our next question comes from Stephen Ju with Crédit Suisse.
Stephen Ju - Crédit Suisse
Thanks, guys. Sorry to keep going on in regards to the divestiture, but I'm a little bit surprised by the amount of sort of the near term dyssynergy from this transaction. So it seems like most of the realized synergies should have been at PowerReviews. But your commentary seems to suggest that you are expecting to, I guess, restaff up here at Bazaarvoice. ¦ Can you help to bridge the gap for us in terms of what you need to do from a practical perspective. Is it salespeople that you need to hire? Is it engineering resources? Is it real estate? And also, maybe a little early to tell, but any sort of initial observation on the conversion rate from free to paying for those clients who are now what you're defining as network clients who have opted in for the Freemium model? Thanks.
I’ll start, maybe Jim will add on. I don’t think we see the need to add staff post-divestiture based on losing individual et cetera from the divestiture. The individuals that are moving across are former PowerReviews employees. Most of them were supporting PowerReviews customer. So it’s a logical transition of individual. We are in a great shape staff wise. Our field headcount and R&D, all of things we’re looking are sound and are in position to help us execute the 2015 plan. So, if we miscommunicated or what have you - there is no dyssynergy involved in this divestiture.
Agreed. As our business gross, we’ll add service employees to serve our new customers.
We’re in great shape to support the continuing operation P&L and guidance that Jim gave, there is no -- we don’t have any gaps to fill that any company of our size would. We always have open headcount but it’s the practice normal course of business.
And regarding conversion rates, I believe the second part of your question. And I believe your question was conversion of Freemium connections to say conversions clients or Freemium. I am not for sure which one. But just -- we do have -- we view Freemium as the lead generation mechanism if you will not in addition to adding to the network asset we have. We viewed as lead generation to connection premium and as well as the conversations and that up-sell is in the mid to upper single digits of our booking from came from Freemium clients moving up.
Stephen Ju - Crédit Suisse
Which is it’s trending the right direction.
Stephen Ju - Crédit Suisse
Understood. Okay, thank you.
And our next question will come from the Nandan Amladi with Deutsche Bank.
Nandan Amladi - Deutsche Bank
Hi, good afternoon. Thanks for taking my question. So a first question on continuing on this divestiture theme. Any of the terms of the original ask from the DOJ change as a result of this? Specifically there was, I think, one condition on sharing some of the content data for a particular period of time. What were some of the original conditions, and how many of those are you actually agreeing to?
None of the conditions stipulated in the final judgment have changed. We do have -- we’ll have a relationship with Viewpoints on syndication of data which we - while we compete with Viewpoints, I think it is also the right decision to have us syndicate content between the two organizations because they have retail sites in our brands when we continued to post content and vice versa. So that will be part of the relationship, but nothing has changed.
Nandan Amladi - Deutsche Bank
Thanks. And a quick follow-up, if I might. Does your guidance embed any significant contribution from the three new products that you launched, or is it mostly from the bookings that you already have and just increasing sales productivity?
There is certainly some reflection of the new products, but I will say that like any new product you do your best understand what the contribution will be over the course of the year. And we’ve probably done our best job to forecast the performance of those products. If anything, we are probably a little conservative of what they can do, but our guidance is -- our guidance does reflect contribution from the new guys.
Nandan Amladi - Deutsche Bank
And this concludes today’s question-and-answer session. At this time, I’d like to turn the conference back over to management for closing remarks.
Just want to thank everybody again for your participation today. We are wrapping up 2014 on a very positive note, in our opinion and looking forward to giving you the updates as 2015 unfold. Thank very much.
This concludes today’s conference. We thank you for your participation.
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