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SciQuest (NASDAQ:SQI)

Q2 2014 Earnings Call

July 30, 2014 4:30 pm ET

Executives

Jamie Andelman - Investor Relations Director

Stephen J. Wiehe - Chairman, Chief Executive Officer and President

Rudy C. Howard - Chief Financial Officer, Principal Accounting Officer and Secretary

Analysts

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

Patrick D. Walravens - JMP Securities LLC, Research Division

Richard H. Davis - Canaccord Genuity, Research Division

Bhavan Suri - William Blair & Company L.L.C., Research Division

Tom M. Roderick - Stifel, Nicolaus & Company, Incorporated, Research Division

Matthew J. Kempler - Sidoti & Company, LLC

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Operator

Greetings, and welcome to the SciQuest's Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jamie Andelman, SciQuest's Head of Investor Relations. Thank you, Mr. Andelman. You may begin.

Jamie Andelman

Thank you, Danielle, and good afternoon, everyone. Thank you for joining us to review SciQuest's second quarter 2014 results.

Hosting today's call are Stephen Wiehe, SciQuest's Chief Executive Officer; and Rudy Howard, our Chief Financial Officer. On today's call, Steve and Rudy will deliver prepared remarks. After which, we will hold a question-and-answer session.

During this call, we may make comments related to our business that are considered forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as, but not limited to, accelerates, anticipates, believes, could, seeks, estimates, expects, intends, may, plan, potential, predicts, projects, should, will, would or similar expressions and the negatives of those terms will identify forward-looking statements. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. Certain of these risks, uncertainties and other important factors that could affect our actual results are described in the Risk Factors section of our most recent annual report on Form 10-K and in other reports filed with the SEC.

In particular, we call your attention to the risk factors in our Annual Report on Form 10-K, entitled our actual operating results may differ significantly from our guidance. These filings are available free of charge on the EDGAR system at sec.gov and in the Investor Relations section of our website, sciquest.com.

SciQuest expressly disclaims any obligations or undertakings to publicly release any updates or revisions to any forward-looking statements made herein except as required by law. Therefore, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Additionally, we will be discussing non-GAAP financial measures during this conference call. When possible, SciQuest provides all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Please see today's press release, which has been included in our filing on Form 8-K and is available on our website and on the EDGAR system, for reconciliations of the non-GAAP financial measures for which we are able to provide the most directly comparable GAAP financial measures.

Lastly, please note that a streaming replay of today's call will be available in the Investor Relations section of our website shortly after we conclude.

And now, I'd like to turn the call over to Steve.

Stephen J. Wiehe

Thank you, Jamie, and hello to everyone joining us today.

During the second quarter, we made excellent progress across a number of areas as we generated solid bookings, reflecting balanced contributions from across the businesses, closed a number of large deals, including some that were previously delayed and met or exceeded our quarterly financial targets.

In the second quarter, non-GAAP revenue grew 16% on a year-over-year basis to $25.7 million, which was slightly above our guidance range.

Non-GAAP EPS was $0.07 per share, which was at the top end of our guidance range. We signed the 11 new customers in the second quarter, up from 9 in the prior year. Average deal size returned to normal levels, which represented a substantial sequential increase. Q1's dip was driven by a SKU towards small deals as we previously noted while this quarter, we had balanced mix between high-value contracts and smaller point solutions.

Similarly, cross-selling was up relative to Q1, thanks to a healthy number of deals with existing customers and a sequential increase in their average value.

In addition to the balance between sales to new and existing customers, as well as large and small deals, we also saw diversity across other dimensions. We added customers in all 4 of our markets, and we sold a wide variety of solutions.

During the quarter, we signed the State of Oklahoma, the University of Utah, Brookdale Senior Living, Quintiles, amongst others.

Stepping back from the short-term measurements, the reengineering of our sales organization that we embarked upon last year is better positioning us for long-term growth. Prove points include: sales activity trends, pipeline levels and process efficiencies.

We've also been supporting growth by enhancing our portfolio to ensure that we have leading sticky technology that generates high returns for our customers. Our development team was hard at work in Q2 on our latest release, version 14.2, which went live 1.5 weeks ago.

14.2 builds upon the success we had last quarter with our new supplier management solution by relaunching our general and by launching our general sourcing product. We have been pleased with a number of customers who are in the process of upgrading to the new supplier management module, and we've been receiving positive customer feedback.

We also have our expectations for the latest generation of our general sourcing solution, which has a more intuitive and mobile friendly interface and is fully integrated with our procure-to-pay suite and supplier management solutions. All of these modules now have the same look and feel, robust configurability and supplier network integration, which we believe further will generate further sales momentum for us.

In conclusion, we executed well and delivered second quarter results that generally met or exceeded expectations with a balance contribution from across the business. We remain confident in our outlook for the remainder of 2014, which provide us guidance as consistent with the prior ranges and has been narrowed to reflect increased second half visibility.

Looking beyond 2014, we expect to deliver solid growth and improving profitability as we leverage the breadth and depth of our industry-leading spend management suite to seize upon our under penetrated multibillion dollar market.

Now, I'll turn the call over to Rudy. Rudy?

Rudy C. Howard

Thanks, Steve. Non-GAAP revenue in the second quarter was $25.7 million, an increase of 16% and slightly above our guidance range. Non-GAAP gross margin was 72% in the second quarter, a 0.2 percentage point decrease from a year ago and in line with our long-term target. Non-GAAP operating expenses were $15.3 million or 59.7% of non-GAAP revenue, 3.4 percentage points higher than last year.

The year-over-year increase is primarily driven by our planned increase in sales and marketing cost to support long-term growth. Non-GAAP operating margin was 12.4%.

Non-GAAP net income was $2 million or $0.07 per share at the top end of our guidance range. We ended the quarter with $150 million of cash on the balance sheet. We also have a $30 million undrawn revolving credit facility.

Operating cash flow for the quarter was an outflow of $1.3 million in the second quarter. Capitalized software costs and property and equipment purchases in the second quarter were each $1.4 million. This translate to adjusted free cash flow being a use of $4.1 million. This was consistent with our internal forecast and was partially due to accelerated cash collection, which we mentioned on the Q1 call, as well as the increased capitalized software costs and property and equipment purchases.

Looking forward, we are narrowing our prior guidance ranges. Though it's always been included in full year, GAAP EPS and operating cash flow guidance, I'd like to draw your attention to the calls associated with our upcoming headquarter move.

Over the next several days, we will be relocating to a new largest space that will enable us to consolidate locations near the Research Triangle Park, as well as to accommodate expected headcount increases to support top line growth in the coming years.

In the third quarter, GAAP EPS will include approximately $0.03 of net lease exit cost. These cost will be excluded from non-GAAP results. The net impact of tenant improvement credits and lease exit costs is a $500,000 positive source of cash that will also be excluded from adjusted free cash flow.

With that in mind, in the third quarter of 2014, we anticipate non-GAAP revenue between $25.6 million and $25.9 million; GAAP revenue between $25.4 and $25.7 million; non-GAAP net income per share between $0.06 and $0.07 based on 28 million weighted average diluted shares outstanding; GAAP net loss per share of between $0.03 and $0.04 based on 27.6 million weighted average basic shares outstanding.

For the full year, we expect to achieve the following in the 2014. Non-GAAP revenue between $104 million and $105 million, GAAP revenue between $102.6 million and $103.6 million.

Non-GAAP net income per share between $0.28 and $0.29 based on 27.1 million weighted average diluted shares outstanding; GAAP net loss per share of between $0.03 and $0.04 based on 26.8 million weighted average basic shares outstanding; operating cash flow between $20.2 million and $22.2 million; purchase of property and equipment of $5.5 million; capitalization of software development costs of approximately $4.8 million; and acquisition-related costs of $3.6 million; tenant improvement credits net of lease exit costs of approximately $5.5 million; and adjusted free cash flow in the range of $13 million to $15 million.

In conclusion, we achieved or slightly exceeded our financial goals in the second quarter and are confident in our outlook for the remainder of the year.

Operator, can you provide instructions for the Q&A session, please?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Brendan Barnicle with Pacific Crest Securities.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Steve, in your comment, you mentioned that ASPs had returned to normal. I was wondering if you could give us any more detail on the breakdown between ASPs on the commercial side of the business, and then on the other side of the business, any trends we should look for there?

Stephen J. Wiehe

I think -- first off, thanks for the question, Brendan, and nice to hear from you. I think what we're finding in terms of pricing has been consistent what we've seen in previous quarters, higher education, typically tends to have a higher overall price because we're typically doing more package deals. With respect to the commercial segment, which tends to the transaction deals tend to be a little lower just because they tend to be point solutions. But in terms of trending, I think our pricing has remained fairly consistent within the last 4 quarters, as well as our discount rates have also remained consistent in the last 4 quarters.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

And Rudy, do you have the breakdown between the percent of revenue, or maybe I missed it that was coming from commercial versus the rest of the business and the growth rates on those 2 pieces?

Rudy C. Howard

Yes. So the percentage of business that came from commercial, Brendan, was 40%, higher education still is slightly larger in the mid-40s and, obviously, government health care are both in high-single digits. And in terms of growth, obviously, higher education and the broader market continues to be the largest contributors to growth with commercial being the highest and that as we don't give exact growth rates, but that exceeds -- exceeded our overall growth rate.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Great. And then lastly, Steve, you had mentioned you're encouraged by the billings recovery in the quarter. The billing numbers were a little bit shy where we've been expecting and it was -- if the growth rate was down sequentially, are you referring to bookings pieces, that are off balance sheet that we don't see that's you encouraged or something within that, that suggest a change in the trend there?

Rudy C. Howard

Yes, I think, Brendan, this is Rudy. As we said, we had a really nice quarter from a bookings perspective. The bookings that we had in Q2 exceeded our internal expectations. I think in addition to that, we obviously have a better visibility on expected bookings for the second half of the year, and we believe that they are going to meet our earlier expectations for those bookings. So I think we had a very nice quarter, both from an actual bookings perspective, as well as visibility towards the rest of the year.

Operator

Our next question comes from Terry Tillman of Raymond James.

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

I guess, Rudy, that's a very intriguing statement you just made or something you said talking about bookings visibility improving in the second half of the year. I guess, for you or Steve, what's driving the better bookings visibility? Is it confidence that a lot of slip deals, I know you said you closed on that slip, but that the rest of those slip deals are going to come through, something that feels more macro, healthier than last quarter. Or is it -- Doug, what are you doing on the sales transformation side? I'd like to learn more about what's driving increased visibility and better bookings.

Rudy C. Howard

So Terry, I think you touched on, actually, a number of areas that have -- continues to move in a positive direction. Yes, I think we did close a number of those deals. There's still a couple of them out there and as we said earlier -- on earlier calls and meetings, we still feel very confident that we'll close them and even more so as we move forward. I think we have -- we spend a lot of time, obviously, since first quarter going deeper into our pipeline. And I think we're all have more comfort with the quality of that pipeline. I think everyone in the process, which is Steve and I and Doug would all agree that we have a higher quality pipeline than we've ever had and I think we have better visibility. Obviously, as with any sales, you don't have a guarantee that they're going to close. But our feeling about our pipeline of where we are in terms of meeting our internal expectations for the second half of the year, I think, is very strong right now. One of the other things you've mentioned is, I think we are seeing increased deficiency and productivity from our sales force. We had a significant number of people, more than ever, who contributed to sales in Q2. And so I think, we're seeing a maturity in our sales force, and we're seeing a more comfortable sales force. And, obviously, a lot of that just comes with growth because as you know, we've increased and hired a lot of new salespeople in the last year, and 1 year or so and I think that's a normal morphosis for that kind of group. But we feel really good about where that is right now.

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

Okay. And Rudy or Steve, I guess, as I was running my notes and looking back at my notes, are you all saying now that maybe your original target for bookings for the year, you're actually think you can hit that now, or are we still looking at kind of revised lower internal bookings expectation?

Rudy C. Howard

Yes. I think that we're -- so let's make sure because we were well short of our expectations in Q1 how -- no matter how you say it, that was clear in our revision of our top line expectation, and we talked a lot about what happened. And I think we talked about in Q1, that we also saw a process that was taking longer and that kind of thing and hence, we went in and looked at that Q2 through 4 and what we thought we were going to get. So the answer to your question and just make sure that we have clarity on it, Terry. I don't think that we'll make up those numbers that we missed in Q1, but I think our expectations for what we would sell in Q2 through 4, we obviously, as I said, we exceeded those expectations for Q2, and I think we have comfort for Q3 and 4. So is that clarify what you're asking?

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

Yes, yes, yes. And I want to get Steve to talk. I don't know if he's still there. Steve, you there?

Stephen J. Wiehe

Yes, I'm here. Rudy is doing such a nice job. I'm just happy to sit here and listen.

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

Maybe I can just get you to try to bite on something and then I'll just shut up and let others ask questions, but you did say you were very pleased to see some of the installed base customers buying more product. Obviously, maybe a lot of that outside a higher edge. What are the newer products that you've inherited either through M&A or through organic development over the last couple of years? Anyhow that stood out for you in the quarter, and then I'll -- I'm done with my questions.

Stephen J. Wiehe

Sure. I was going to sit here and see might have Rudy to answer this one too. What we're very pleased about, it wasn't in the prepared remarks as we talked about with our investors and the investment community, we've been working to rewrite and recraft our supplier management solution, as well as our sourcing solution. We were very pleased with the amount of market uptake that we've seen with our Total Supplier Manager product, so we had some very positive activity in our second quarter bookings, and we're optimistic for that for the second half of the year. As I also mentioned in our remarks, we are in the process of releasing the new sourcing product early returns on that product are also very positive. And we believe both of those 2 products will help us in terms of our sales activities in the second half. And so I think it's justifying our R&D spend, and that we're building some very good products that we're finding the markets interested in adopting.

Operator

Our next question comes from Patrick Walravens of JMP Securities.

Patrick D. Walravens - JMP Securities LLC, Research Division

Just stepping back for a minute here. I think the biggest frustration that I hear from investors is just been the volatility and the quarterly results. And so I'm just wondering, what key points would you make to investors about maybe how it should think about your business or what you're doing just try -- to trying to improve the consistency?

Stephen J. Wiehe

Sure. I think -- first off, I think that's a fair observation of the business. Our bookings have been lumpy historically, and we've always been open with our investors even from the time at the IPO. Our business has been very much about large ticket deals, elephant hunting. And elephant hunting can be a little feast and famine, and that's where we suffered from. As a result of that and that's something that we, as a company, been very aware of, and we've been actively looking to investing to mitigate that risk. We've been through our acquisition, as well as through our internal development. We have been building more point solutions, and so we are able to take a mixture of big deals and small deals to market in a hope of trying to flatten out some of that lumpiness. Last quarter is a great example of that. We had great predictability in terms of the small deals. In fact, we had a highest number ever in terms of small transactions where we hit an air pocket was the big deals. This quarter, we're back with bigger transactions and the smaller transactions. So back to specifically your question what are we doing to eliminate this problem or to try to settle it down. We're continuing to invest in more point solutions, as I talked about our Total Supplier Manager product and our sourcing product. We believe having more and more point solutions will give us an ability to have a more balanced portfolio and to make us less susceptible to kind of the lumpiness that we've seen. So back to your question or your comment, Pat, it's a fair observation, but it is something that we're aware of. And I think that we, as a company, are looking to try to do the best we can to solve that problem.

Operator

Our next question comes from Richard Davis of Canaccord Genuity.

Richard H. Davis - Canaccord Genuity, Research Division

I think the answer is no, but the question would be, it doesn't appear -- do you think there's been any meaningful change in the competitive environment with regard to anyone else out there? My assessment of the answer is no, but I just wanted to make sure because it's really -- I think the right question is, what the JMP asked which is like what it's been lumpy, how do we get some comfort that things are going to be stable? And I think, don't think it's competition, it sounds like you just trying to tighten the screws up a little better to make things a little more smooth, if that's the right assessment, so that's really the question I had.

Stephen J. Wiehe

Yes. No, your answer to your own question is accurate. Our lumpiness has not been competitive related. In fact, of the deals that it slipped in Q1, we've closed a preponderance of them in Q2. There's still a couple out there. They are not competitive, it is again it's going to the internal approval processes. Competition, I think, is you'd written a note a couple of weeks ago I saw. Our competition is bifurcated. We do see pockets of it. It is the same competitors that we have talked about before. We don't see them anymore or any less than we have 12 months or 18 months ago. In fact, I think we're probably getting better at being more competitive against them, but I think that's hard to measure. So cutting back to your question, competition has not shifted in the last 3, 4 quarters for us, any more than it has in the past.

Rudy C. Howard

One thing, Richard, to I'll add about the competitiveness and particularly the lumpiness question is, I do think the expansion of our sales force and how it has matured and become more productive will serve just a broader coverage and everything will serve to alleviate some of that lumpiness. Obviously, we have deals pushed out. That's always going to happen, and I don't think that's peculiar to our business, but obviously, having more people out there selling products and particularly in the commercial space, I think will give us some advantage of where we were in the past in terms of that lumpiness.

Operator

Our next question comes from Bhavan Suri with William Blair.

Bhavan Suri - William Blair & Company L.L.C., Research Division

Just as you look at the deals that were closed from last quarter, and you look at what's left. Just following-up on the competitive environment, do you feel like there was some deals there that were at risk or are there some of the business that are at risk from a competitor perspective? Or is it purely delays that are specific to the companies themselves?

Stephen J. Wiehe

Everything that has been delayed or that was delayed that's been closed has all been company-centric, it's not been competitive. And the reason or the data that I used to defend that is the deals that closed, closed at the same price that they were before. It's usually when you see competitive deals and a slowdown and a close, but they closed at a lower price, and you know there is a bit of an auction going on. It's a competitive situation. Pricing is held stable for us, so it's really -- it's not a competitive situation, its internal approvals/reviews.

Bhavan Suri - William Blair & Company L.L.C., Research Division

Okay, okay. And then when you look at the extension of sales cycles and it's funny. End of last quarter, we heard it from a number of folks that had large deals. Do you -- and you obviously included that in the guidance, everything else. Is that still sustained? As you look at the newer deals that are coming out, obviously solid booking quarter. But as you look at newer deals that might be earlier in the pipeline, do you feel that deals of the same size, the same caliber, same set of clients are still sort of elongated or are those kind of returned on in terms of the cycle return to a more normalized cycle?

Stephen J. Wiehe

I think it's hard, so you're asking us to forecast. I think we'll know what looking backwards. Right now, our assumption is that we're going to continue to assume it's an elongated sales cycle until data proves otherwise.

Bhavan Suri - William Blair & Company L.L.C., Research Division

Okay, okay. And then one for Rudy, just to help me understand. Obviously, the bookings metric came in solid and I'm glad about the visibility in the back half. But you sort of also just tweaks guidance a little bit, it's slightly down on the high-end. Just help me understand the thought process there as we look at that.

Rudy C. Howard

Yes, a couple of things, Bhavan. Primarily, just obviously, the better visibility. I will tell you that some of the services and also some of the spend analytics deals we had a very good quarter in Q2 from a spend analytics perspective. And usually those deals, the work on that gets completed in a 90- to 180-day timeframe, but a couple of those large deals are actually going to manifest themselves in Q1 of '15. And so some of the revenue actually is trend -- from those particular engagements trended a little different than what normally in a spend analytics deal. So with all that said, it's just a matter of better visibility and the way that some of the services engagements fail.

Bhavan Suri - William Blair & Company L.L.C., Research Division

That's really helpful. And then when you look at the commercial business, and you look at sort of spend analytics, spend rate has been a great product there and certainly, been beating up the competition. But when you look at the modules that you sell vis-a-vis, the core procurement offering, the advanced sourcing offering, et cetera, Contract Director, et cetera. When you look at the point solutions, any sort of uptick in specific areas? It feels like spend, management's spend analysis seems to be one pretty strong area, but is it across the board, or would you say that, that particular model just has more traction in the commercial side than the other pieces?

Rudy C. Howard

No, I don't think so. In fact, we had a very good quarter with both Contract Director and ASO this quarter. We had some nice deals in that. So I think that all of our products are doing pretty well. And, obviously, there is -- from time to time, some of them have better sales numbers than the others do, but I think that we have positive contributions, but they already made positive contributions in Q2.

Operator

Now our next question comes from Tom Roderick with Stifel.

Tom M. Roderick - Stifel, Nicolaus & Company, Incorporated, Research Division

So Rudy, if I look at your guidance for next quarter and for the year, I think what everyone is going to get to, just going to the high end of the range, for instance, is a growth number exiting the year that's still in, sort of, the low-single digits. I'm gathering that's probably not what you want people to think of the core growth of the business, nor it was the growth in bookings sounded like this quarter. But I guess the question is sort of two-part. I mean, how should we think about sort of the mid-term capabilities of the business to grow to get back into those mid-teens or even 20% levels? And what sort of inputs need that to go into the model from either additive sales heads or other features that you need to get there?

Rudy C. Howard

Yes. So couple of things, Tom, when you look at, particularly in Q4. If you recall from Q4, we had 2 things in our Q4 2013 numbers that really sort of inflated those. And number one was the settlement with the State of Oregon for about $0.5 million. And we also had -- we had an unusual services quarter, and I've talked about it in that release that was about $0.5 million additional services above our normal level. So our Q4 '13 is somewhat inflated, and that coupled with the sales quarter, Q1 sales quarter, obviously, Q4 2014, you're right, is not going to have a high growth rate compared to Q4 of '13. I do think in heading into 2015 and again, given what we sold this quarter and given our visibility for the second half of the year, I think that we are more confident in where we'll be in 2015. And so I still believe that once we get past Q1 of '15 next year that we return to those mid-teens growth rate and even around the 20% mark for the second half of 2015.

Tom M. Roderick - Stifel, Nicolaus & Company, Incorporated, Research Division

Great. One quick follow-up for me. Just as you look at your balance sheet, pretty healthy balance sheet. You've done a nice job in the past with acquisitions they sort of tucking those in and falling those in. What's your appetite as you look at the rest of this year to be able and ready to do another type of sort of tuck-in product-based acquisition? Is that something we should think is on the table at this point, or is that more of a 2015 event for you?

Stephen J. Wiehe

We continue to look at opportunities. We have seen some interesting things, but nothing that is been to a point where we've been interested in jumping on it. I think we will continue to look at deals. I think it's hard to give odds as to what we do something in the second half of this year. We're not moving away from it, but we continue to have a fairly high bar and just continue to evaluate things. But at this point, there's nothing that we have in our pipelines to talk about.

Operator

[Operator Instructions] Our next question comes from Matthew Kempler with Sidoti & Company.

Matthew J. Kempler - Sidoti & Company, LLC

So I just wanted to follow-up and clarify. Did you say that within the sales pipeline, you're still seeing some extension on the large deals per sale cycles, and that's what you're assuming, it's going to continue to happen in the guidance for the rest of the year?

Rudy C. Howard

Yes. I think, Matt, the conditions that we talked about last quarter, some of the larger more complex deals do take a long time to bring to fruition and I'll think we're seeing any different conditions now than what we saw then. So in our plan for the second half of the year in terms of our sales plan, we certainly taking that into consideration as we said on our Q1 earnings call, and hence, we've got it accordingly.

Matthew J. Kempler - Sidoti & Company, LLC

Okay. And then I wanted to see if you comment a little bit more on the sales cycle for the new state that you signed. And was that part of WSCA? And then maybe talk a little bit about -- I know you added a new VP for state and local and how that team is coming along and maybe the maturity of the pipeline there?

Stephen J. Wiehe

Sure. So yes, it is part of WSCA, so this has been -- the WSCA relationship continues to be very good for us, and so we've been pleased with that. With respect to the new VP of Government, we've been very pleased with his activity. He's building a very nice pipeline, I think he's building himself a very nice sales team. And so we've been very pleased with his results so far.

Matthew J. Kempler - Sidoti & Company, LLC

Okay. And then I just wanted to ask, on the new customer count, how do you think about the balance of trying to drive up the number of new customers that driving each quarter versus the existing business? At some point, should we with the number of new products we have, the number of new sales what we have, should we expect to see the customer composition sort of accelerate?

Rudy C. Howard

Matt, I think that it will, however, obviously, we -- we hear a lot of our opportunities that are occurring in the commercial space are with companies that have one product and they're looking at other products. I will tell you a great example of that one of the companies that we signed this quarter. We thought -- as we started doing the analysis we felt that they were a new company and actually we looked, and they have one of our other products. And so that is becoming a very fruitful area for us in selling those companies additional solutions. So we've got to always continue to generate new customers and I think we will in that number I think we'll continue to grow. But obviously, that existing customer base is a very good place for us to sell as well.

Matthew J. Kempler - Sidoti & Company, LLC

Okay. And then last thing from me. The gross margin, it looks like it gets a little bit sequentially. Should we expect that to rebound as the revenue comes on in the second half or is the investments we're making in the business?

Rudy C. Howard

Yes. I think what you're seeing, Matt, is basically with the flattish revenue that we've had due to this Q1 issue. Obviously, some of our costs, as you expect, continue to grow. And so there's a little bit of erosion of that just based on that fact and based on continued investment in the business as our revenue starts to uptick like this year and particularly in next year, we'll see that gross margin improve.

Operator

Our last question comes from Jeff Houston with Barrington Research.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

I think you said before that roughly 50% of bookings typically closed in the last week of the quarter. Was that the case in Q2?

Stephen J. Wiehe

No. Actually it was down below what we've seen in the past, so we were real pleased in that. We saw bookings -- we saw new business being signed throughout the quarter rather than the end of the quarter deluge that we've seen in past quarters.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Was that due in part to the deals that slipped from last quarter closing earlier, or was it mixed with nonslip deals?

Stephen J. Wiehe

It was mixed. There were a few that slipped, they closed early, but we did have a very good sales quarter in May and a lot of those were either new names for existing customers buying additional products, and they were not part of the Q1 slip.

Rudy C. Howard

I will say this too, as well, I think obviously given some of the issues around Q1, there's been a focus on our sales force getting deals closed as quickly as possible.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Great. Then separately, I was hoping to get an update of the PwC's rollout of its 7 new products. It seems like a really great, somewhat recent example of a commercial customer cross-sell win. Where are they with their rollout of the 7 new products and with the 11 new clients added this quarter, were any of them on par with what you had with PwC?

Stephen J. Wiehe

Let's see. So specifically PwC, the role out continues. We would describe it as a kind of status quo as with all of our other projects. I think things are going well, we don't see any problems, but we're continuing to work through it. With respect to other accounts, we had -- I think we had some very great names, and they were, as we said in the prepared remarks, a mixture of point solutions, as well as whole portfolios. So I don't have the date in front of me to say were any of them exactly like PwC, but we had a number of customers that took a fairly large block of software from us. So we continue to be pleased with the market's acceptance of our technology and our product set.

Jeffrey L. Houston - Barrington Research Associates, Inc., Research Division

Great. And then lastly, there's -- it was good to see 11 new clients added in the quarter. Is the total client base still about 534, or is it up a little bit?

Rudy C. Howard

Yes. So we don't give that number, but it is in that range, Jeff.

Operator

Thank you. This concludes the question-and-answer session. I will now turn the call back over to Mr. Andelman for closing comments.

Jamie Andelman

Thank you for your time and interest today. Second quarter generally unfolded as expected. In some areas, a little better. Operations across the firm are running smoothly. We have increased confidence in our ability to achieve our targets in 2014 and beyond. Have a great night.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you, all, for your participation.

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Source: SciQuest's (SQI) CEO Stephen Wiehe on Q2 2014 Results - Earnings Call Transcript
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