Amber Road, Inc. (NYSE:AMBR)
Q2 2014 Results Earnings Conference Call
August 07, 2014, 05:00 PM ET
Staci Mortenson - Investor Relations
James Preuninger - Chief Executive Officer
Thomas Conway - Chief Financial Officer
Tom Roderick - Stifel Nicolaus
Eric Lemus - Raymond James & Associates
Good afternoon and welcome to the Amber Road Second Quarter 2014 Earnings Call. Today's conference is being recorded.
I would now like to turn the presentation over to Staci Mortenson, Investor Relations.
Thank you operator and thank you for joining us on Amber Road's second quarter 2014 earnings conference call. As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available on our website following the call. By now you should have received the copy of the press release that was distributed this afternoon. If you have not, it's available on the Investor Relation section of our website.
Before we begin, I would like to remind you that, during today's call we will be making forward-looking statements regarding future events and financial performance including our guidance for our third quarter and for fiscal year 2014. We caution you that, such statements are judgment based on factors that the actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, in particular our Form 10-Q and our Form 8-K filed today with the press release. These documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed and reviewed after today, the information presented during the call may not contain current or accurate information. We disclaim any obligation to update or revise any forward-looking statements. We will provide guidance on today's call but will not provide any further guidance or updates on our performance during the quarter and not we do so in a public forum.
During the call, we will also discuss our non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results is provided in today's press release. The projections that we file today exclude stock-based compensation, restricted stock expense, competition related loan forgiveness, affordable stock compensation, changes in their values, liability and expense which can not be determine at this time and therefore not reconciled in today's press release.
With that I will the call over to our CEO, Jim Preuninger. Jim?
Thanks Staci and thanks everyone for joining us today. This was another strong quarter for Amber Road with revenue accelerating 32% year-over-year to $15.8 million. This performance was driven by the increasing demand for Global Trade Management solutions, our highly differentiated offering and the response to our sales and marketing investments to drive awareness and adoption. Tom will spend some time on our financial results and key performance metrics in just a few minutes, but let me walk you through some of the quarter's operating highlights.
We saw a broad-based demand across all of our market segments, which as a reminder include U.S. large enterprise, U.S. mid-market, European large enterprise and more recently China. We are pleased with this well-diversified performance which proves that the global market opportunity for GTM solutions is large and that we are executing well around the globe.
In fact, Amber Road its best quarter in our history in terms of new customers signings in Q2. We've done a lot to expand marketing to reach more customers. During the first half of this year, we almost doubled our webinar, trade show and sponsored campaign marketing activities compared to the first half of 2013 and this quarter's result are testament to our efforts in this area. In particular, we are gaining traction in the mid-market as we work to educate senior leaders about the key issues involved in participating in global trade. More and more mid-market companies are expanding internationally and realizing the complexities related to global trade and the meaningful benefits that they can gain with our solutions.
We are also continuing to invest in our large and growing opportunity in China. Due to China's many unique trade processing regulations, automation is becoming, if not an imperative, certainly a very strong requirement, and our addressable market is significant. With Amber Road China, we are in a leading position in this market and we are pleased with our business integration to this date. Our sales and marketing heads are in place and we plan to add more staff throughout the remainder of the year. The marketing programs that we are rolling out in China are exceeding our objectives and we are successfully building at our pipeline in opening new global opportunities. And in spite of the fact that we only just started, we're starting to realize results well ahead of our expectations.
In the recent quarters, we saw signed, as an example, a subscription with Valeo, one of the world's leading automotive suppliers with multiple facilities doing imports and exports operations in China. Valeo selected the Amber Road China trade management solutions to automate their international transactions for both the general as well as processing trade requirements for all of their facilities across China. They'll also be using Amber Road dashboard of key performance indicators to drive more metrics to decision makers. We're chosen because of the comprehensive and proven trade management solution and our strong customer references.
To enhance our visibility in this region, we're very excited to have Davy Ho joined us as a new independent director on our board with his extensive experience in China. Davy is a resident in Hong Kong and often travels throughout the region. We believe his skills, his experience, his presence will give us an unmatched resource.
Also I want to share with you two new customer examples that span the globe. First, a leading American apparel company selected Amber Road to automate Naphtha and Captcha, two very important free trade agreements in other qualification processes. With our technology, they will lower their costs by lowering the duties and taxes that they pay when they cross borders. We were selected because of the breadth and coverage of our software and our very important content.
Second, Electrocomponents, the world's leading high service distribution of electronics and maintenance licensed our export, import and trade visit modules to automate their trade processes, reduce cost and improve the timeliness of their decision making. Our solution will help them shorten delivery times to improve customer service, reduce cost associated with international shipments and speed their plant to grow international business across a wide range of countries.
Overall, we are very pleased with the momentum we've gained in the quarter and I am confident that we will continue to deliver on our growth objectives throughout the remainder of the year. Given our large and growing market, our strong competition position and our highly attractive business model, I think we are well positioned for a long-term success.
With that let me turn it over to Tom.
Thanks Jim and good afternoon everyone. I'll start with a detailed overview of our second quarter financial performance and then I'll provide some comments on our third quarter and full year outlook for 2014. Following my closing remarks, we'll open up the call for your questions.
Starting with the second quarter results, regarding the statement of operations, we generated revenue in the quarter of $15.8 million, up 32% year-over-year. Our subscription revenue was $10.6 million, an increase of 23% over the prior year period. Professional services revenue was $5.2 million, a 58% increase from the same period a year ago. The increase was driven by our strong book of business which we effectively executed against during the quarter. Our annualized recurring revenue retention rate for the second quarter was 102%. We believe that this continues to demonstrate the long-term value of our customer relationships with regard to revenue and our billings visibility.
On a GAAP basis, our gross profit was $8.8 million or 56% of total revenue, compared to $6.4 million or 54% of total revenue in the prior year period. The subscription gross profit was $7 million or 66% of subscription revenue, compared to $5.5 million or 63% of subscription revenue booked in the second quarter of 2013. Our gross profit on professional services was $1.8 million or 35% of professional services revenue, an increase compared to $933,000 or 29% of professional services revenue in the same period last year. The increase in our gross profit was due to higher staff utilization in our services team as well as realizing leverage in the business as we scale.
With regard to operating expenses, our solutions address a large and growing market. In order to capitalize on the meaningful opportunity in front of us and to extend our leadership position, we intend to continue to invest particularly in the areas of sales and marketing and research and development. Research and development expenses grew 30% year-over-year to $2.4 million, primarily driven by investments to further strengthen and enhance our solution. Our sales and marketing expenses increased 25% year-over-year to $5.1 million or 32% of revenue due to the expansion of our sales force to address our growing opportunities as well as investments in demand generation marketing programs. During the second quarter, we did see a shift in timing around some sales and marketing programs into the second half of the year, which positively impacted expenses.
General and administrative expenses were $3.3 million, compared to $2.6 million in the year ago period. This increase is due primarily to compensation cost for our finance and operations teams that were expanded to support our operations as a public company. For the second quarter, GAAP operating loss was $2 million, compared to a GAAP operating loss of $5.3 million in the second quarter of last year. The 2013 number included $3.2 million in restricted stock expense.
On a non-GAAP basis, the operating loss was $1.8 million, compared to an operating loss of 1.5 million in the year ago period. Non-GAAP operating loss for the second quarter of 2014 excludes such items as stock-based compensation, affordable stock compensation and changes in the fair value of contingent consideration liabilities. Our GAAP net loss attributable to common stockholders was $2.2 million for the second quarter of 2014. This compares to a GAAP net loss attributable to common stockholders of $6.6 million in the prior year period. GAAP net loss per share was $0.09 in the second quarter of 2014, compared to a net loss per share of $1.79 in the second quarter of 2013. This is based on 25.2 million and 3.7 million shares outstanding respectively.
On a non-GAAP basis, net loss was $2 million for the second quarter of 2014. This number compares to non-GAAP net loss of $1.5 million in the prior year period. Non-GAAP net loss per share was $0.08 in the second quarter of 2014, compared to $0.41 in the prior year period. These numbers are based on $25.2 million and $3.7 million shares outstanding respectively. Adjusted EBITDA for the quarter was a loss of $568,000. This compares to an adjusted EBITDA loss of $645,000 in the same period last year. Turning our focus to the balance sheet, as of June 30, 2014, we had cash and cash equivalents of $41.3 million compared to $5.1 million as of December 31, 2013. Our cash used in operating activities for the six months ended June 30, 2014 was $8.9 million and free cash flow used was $9.4 million.
Turning our attention to guidance, I'll start with our thoughts on the third quarter of 2014. Total revenue is expected to be in the range of $15.9 million to $16.1 million. The non-GAAP operating loss is expected to be in the range of $2 million to $2.3 million. The non-GAAP net loss per share is expected in the range of $0.10 to $0.11. Per share guidance assumes 25.4 million basic shares outstanding. Expectations of non-GAAP loss from operations and non-GAAP loss per basic share excludes stock-based compensation, restricted stock and changes in the fair value of contingent consideration liabilities.
From the 2014 annual perspective, we give the following guidance. Total revenue is expected to be in the range of $63 million to $63.6 million. Non-GAAP operating loss is expected to be in the range of $5.9 million to $6.5 million. Our non-GAAP net loss per share is expected to be in the range of $0.29 to $0.32. Again this per share guidance assumes 25.4 million basic shares outstanding. The expectations of the non-GAAP loss from operations and non-GAAP loss per basic share exclude for the full year of 2014 stock-based compensation, restricted stock compensation, compensation related to loan forgiveness, affordable stock compensation, and changes in the fair value of contingent consideration liabilities and lastly warrant expense.
As Jim indicated, we're pleased how we've been executing and our 2014 guidance continues to assume strong business momentum. I would like to note two items related to our current guidance. Firstly, while we are experiencing record demand for our services, the second half of the year has less billable days due to summer vacations and holidays that there are in the first half of the year.
Secondly, our non-GAAP operating loss for both the third quarter and for the full year is in line with our stated strategy to continue making ongoing investments in the business and we remain on our investment plan for the full year. We will continue to hire services and sales people in order to support the demand we're seeing and we will continue to invest in China given the early success we had in building market awareness and our pipeline there. Our non-GAAP operating loss guidance also reflects the timing of certain expenses related to sales and marketing programs and hiring that shifted from the first half of the year end into the second half of the year.
In summary, we had a strong quarter and we're excited about the large and growing market opportunity. We continue to see increasing demand for Global Trade Management solutions and as well awareness and adoption of our highly differentiated offerings continues to grow.
With that, we're happy to take your questions. Operator, please open the line for questions.
Yes. Thank you. (Operator Instructions). And our first question comes from Tom Roderick with Stifel.
Tom Roderick - Stifel Nicolaus
Hi, gentlemen. Good afternoon. Let me ask a big picture macro question to start off with here. We've heard from some of the software companies this quarter, a little bit of Q2 blues particularly as it relates to the larger deals and the pace and tenor of those larger deals. Can you provide a little bit more detail what you are seeing out there relative to your mid-market opportunity and the large enterprise? How the new bookings deal flow has helped and particular as you look at some of those bigger deals, are they getting across the goal line in a similar timeframe to what you expected, are they requiring more signatures? What's going out there?
That's a few questions, but it's a good one for me. Let me handle that. So, as I noted in my comments, we had really strong demand in every one of our market segments. In fact, we are well ahead of our bookings objective for the first half of the year. I think our mid-market team has had something like their eighth quarter in a row of meeting or exceeding the quarterly objectives. So, we are really happy the kind of performance that we are getting there.
Europe had a pillar quarter, too. It's nice to be able to have these different levers to pull. There were number of nice size deals done as I was able to mention the one, Electrocomponents that came out of our European team.
In China, our budget this for new bookings was rather modest, zero. We thought, we're just going to build the team and get in the market and build the pipeline and try to give ourselves some good momentum in 2015. But we've been posing deals now every quarter that we've had operations there and they actually had a very nice set of transactions as I noted the one with Valeo. I can't say that we are seeing any difference or change in the tenor of the market and the deal pace is consistent with the experiences that we saw last year.
Tom Roderick - Stifel Nicolaus
Great feedback. Thank you. Breaking up the subscription and services lines, you guys have been bidding handily relative to at least our expectations of model on the services line and subscription, I know there is an element of seasonality in that. So, may be you could kind of remind us, how does seasonality plays out in subscription? And as it relates to your Q3 guidance and guidance for rest of the year, how should we think about subscription sort of playing out given that, sequentially last few quarters have been sort of flattish with where they finished up in the last year on the subscription line?
Tom Conway speaking. I assume that your comment on seasonality with regard to subscription back to our S1 filing and the commentary we made about the one large customer. We have that experience of seasonality, is that correct?
That's part of that, yeah.
Yeah. That seasonality we expect is part of our plan. We've model it and as you know, we've taken that in to account for our full year guidance. Seasonality, as is relates to subscription element of the business, otherwise we don't have a large upside transactional experience here at Amber Road.
So seasonality is not necessarily something we think about in terms of the subscription from the business of 99% of our customers that we sign with. Services on the other hand, again not seasonality, but we were hot, the first quarter and second quarter of the year as you noted and we were able to deploy a great amount of resource on the services side across many of the engagements that we have. We have an unbelievable backlog of services engagements to get to.
We did make some commentary in our guidance about the billable days in such for the remainder of the year. But we are running very hot in that organization and ahead of even our own expectations.
Tom Roderick - Stifel Nicolaus
Great. May be last quick question from me. Just jumping on the topic of implantation. You've got some very large strategic ones going it all points, but certainly now out there in international regions. Can you talk about some of the larger projects? I don't know if you can reference any particular just more broadly how the pace of implementation has gone and how your capacity on the services side looks to you?
We are hiring people every month. There is a process to hire someone, train then, have them shadow other personnel in project on a non-billable basis until they grow their skills and experience and I think we continue the pace we are at. We'll have right kind of staff coming in to 2015. But there is lot of projects going on and I believe active project works right now would number just under 40. So, there is lot of customers implementing whole lot of our solution.
Tom Roderick - Stifel Nicolaus
That's great, thank you guys for the details I appreciate it.
And we'll go next to Richard Davis from Canaccord.
Hi, guys. This is Evan on for Richard. Just one quick question. Back in June the card acquired Customs Info and just curious if you had look at them on your end and does that make the card a more competitive? Any comment on that will be great.
Customs Info was not a really a direct competitor. They have some content that they sell but they weren't in a software business that had enterprise class solution. So, I don't really think that changes the competitive dynamics for us at all.
Okay, perfect. That's it from me. Thanks.
(Operator Instructions) And we'll go next to Michael Huang with Needham & Company.
Hi great. Thanks for taking my question this is Michael Turn on for Michael Huang with Needham. Just wanted to see if you could provide us with an update on product roadmap and are you continuing to build out free trade capabilities. It sounded like you added a new customer there? Are you still building this out and can you talk a little bit about the re-write of easy cargo, China trade management solution as well?
Yeah. So, free trade agreement is a hot solution. I don't we have new deals that go on with that module isn't included. And people are demanding more and more free trade agreements so we have content plug-ins for every one of them. I believe the number of free trade agreements we're supporting now is just under 40 and we're probably adding several every quarter. So, it's a good product for us. We came out with a new module. We're starting to make an announcement on that in another month or so, but we're seeing some strong demand from some customers to be an early adopter of that solution. We have a pipeline and a roadmap right now that goes out for next 18 months where we're pretty excited about some of the stuff that we're going to be delivering.
The last question was on China. We have finished our integration work on the technology front with that solution. It has the Amber Road look and feel to it. It's integrated and exactly we're going to add and done the implementation with a couple of customers so.
Great. That's helpful. And then just a sort of follow on to some of your original points, would you care to comment provide an update on the number or the trend in multi-module deals you're seeing?
In the large enterprise space, it would be very rare that, someone would only buy a single module from us. More typical today is at least three and then we're seeing deals go down as many as six.
Great. Thanks very much. Thanks for taking my questions.
And we'll go next to Eric Lemus with Raymond James.
Eric Lemus - Raymond James & Associates
Hey guys. Thanks for taking the question. I think you guys have been performing pretty well on the gross margin line. Can you guys just talk about what's driving that gross margin and then going forward 2015, do you guys actually see that rate expanding into 2015?
Yeah. Hi, Tom speaking. So, a couple of things going on. We continue to see the scale of our business. There are certain elements to our cost structure such as our hosting operations and out content that provide great leverage in the business model that you all would expect to see on a subscription side of the business. So, we plan for that, we worked hard at providing good model for that and we're executing really well there.
We're actually seeing a couple of picks on the gross margin is, we have had an expectation of services margin that we've over achieved here in the first two quarters of 2014. The projects as you know, the revenue has been outstanding, the revenue growth in services been outstanding and it was above expectation. We've been able to put utilization numbers for the workforce on the services side. It's rare that, we don't hire somebody.
As Jim said that, they'll shadow but they don't shadow very long before they're billing. We're putting people right out in the field. The demand is unbelievable in the services world and higher utilization in that world relates to higher gross margin and that's where we're seeing it.
Eric Lemus - Raymond James & Associates
Great. Thanks that's helpful. And then lastly, it sounded like both the mid-market and enterprise business formed well in the quarter. Do you guys expect to see any sort of meaningful shift in terms of revenue contribution either of those in intermediate term?
I think the ratio between the large enterprise and mid-market is probably going to hold steady and it's really a factor that we're meeting our objectives and closing new business in all those markets. So, I think the ratio moving forward will be about the same.
Eric Lemus - Raymond James & Associates
Great. Thanks guys.
And with no more questions in queue, I'd like to turn the call back to Jim Preuninger for closing remarks.
Great. Thank you, operator. And again, thanks everyone for participating and giving us those great questions. We appreciate the support and I'd like to express my thanks to really the entire Amber Road team for a terrific first half. I'll tell you we're pretty excited about the quarter that we're in and our view for the fourth quarter is fairly robust as well. So, we look forward to giving that update in the next earnings call. Thank you very much.
This concludes today's call. Have a wonderful day.
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