Cvent, Inc. (NYSE:CVT)
Q2 2014 Earnings Conference Call
August 7, 2014 5:00 p.m. ET
Reggie Aggarwal – Chief Executive Officer and Chairman
Pete Childs – Chief Financial Officer
Chuck Ghoorah –Executive Vice President-Sales and Marketing
Brendan Barnicle – Pacific Crest Securities
Jennifer Lowe – Morgan Stanley
Greg Dunham – Goldman Sachs
Tom Roderick – Stifel Nicolaus & Company
Hello and welcome to the Cvent Second Quarter 2014 Financial Results Conference Call. All participants will be in listen only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions) Please note that this event is being recorded.
I would now like to turn the conference over to Pete Childs. Mr. Childs, please go ahead.
Thank you. Good afternoon and welcome to Cvent’s financial results conference call for the second quarter of 2014. This is Pete Childs, Chief Financial Officer of Cvent and with me here today is Reggie Aggarwal, CEO and Chairman of Cvent; and Chuck Ghoorah, our Executive Vice President of Sales and Marketing. After the market closed today, we issued a press release with details on our second quarter performance. This can be accessed on the Investor Relations section of our website at investors.cvent.com.
During today’s call, we will make statements related to our business that may be considered forward-looking under Federal Securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in the Safe Harbor statements included in our earnings press release as well as our most recent filings with the Securities and Exchange Commission. Also during the course of today’s call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release.
Finally, at times in our prepared comments or in responses to your questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. This call is being recorded and a replay will be available following the conclusion of the call.
And with that, let me turn the call over to Reggie for his prepared remarks.
Thanks, Pete, and thank you for joining us on Cvent’s earnings call for the second quarter. I’m pleased to announce that we delivered strong second quarter top and bottom line results. Revenue was $34.1 million, an increase of 27% from a year ago and above the high end of our guidance range. Operationally, we saw this revenue upside flow through to the bottom line with adjusted EBITDA of $4.6 million and non-GAAP EPS of $0.06, both of which were also above our guidance ranges.
In addition to delivering strong financial results, we strengthened our brand by hosting three successful thought leader conferences during the quarter .As discussed in our last call, we hosted our first we hosted our first annual group business forum which brought together over 400 hotel executives from around the world. In June, we held our third annual corporate meeting summit in conjunction with our first annual association meeting summit. We doubled the attendance from last year’s summit with over 1,000 meeting and event professionals.
I know that some of you joined us for the analyst day that we held at the summit and I believe you agree that it was a very exciting and thought provoking event. Attendees got to experience firsthand how newer technologies like our CrowdCompass mobile app can make events more engaging. In addition, attendees were tweeting throughout the conference and we showed off our social off solution by displaying their tweets and pictures. Many attendees noticed the increased attendee engagement and called the summit one of the best events their team had ever attended. At the summit, we also formally introduced one of the most ambitious updates to our platform with a redesigned layout, refresh interface and re-imagined usability. We call this the new Blue release because it’s more intuitive for our customers to manage their events while maintaining their platforms’ feature rich functionality. We expect all of our clients to be on the new platform by the end of the year.
Now let me take a step back to provide more details about our results. Starting with the media and event management side of our business, platform subscription grew 29% year over year to $24.2 million, with strength coming from and increasing number of larger customer contracts in the past year as our average contract size is increasing due to new contracts, more often including multiple product components and larger companies adopting our technology.
On the marketing side of our business we saw 21% growth in revenue to $9.9 million. The lower than typical growth rate arises from unusually high nonrecurring revenues from the sales of new ad types during the second and third quarters of 2013 as discussed in last quarter’s call. Although that means we expect to see this effect again in the third quarter of the year, we are pleased with our momentum and results across both business lines.
I will now provide some additional color on business activity and I’ll begin with the meeting and event side of the business. Our enterprise level strategic meeting matching solution which helps meeting planners gain visibility into meetings expenditure and drive cost optimization at larger enterprises, continue to gain momentum. During the second quarter, we signed a number of new strategic meetings management accounts, including Goodyear Tire and Rubber, CWT Meetings and Events, which is part of Carlson Wagonlit Travel, a Fortune 500 insurance company and a global 1,000 Pharmaceutical company. This large pharmaceutical company had a very pressing need that Cvent was able to address. Government regulations are now requiring pharmas to track meetings and event spend per healthcare professional, known as HCP spend. Cvent’s SMM will help them not only track their HCP spend, but also allow them to track global aggregate meeting spend against budget, strategically source venues and streamline their attendee registration.
We continue to enjoy stronger renewal rates across our platform, with particularly high renewal rates among our SMM customers. In the second quarter we saw SMM renewals with customers such as a Fortune 100 health Insurance company, by Biotronics and Straumann USA. And many SMM customers expanded uses under their existing license, including a Fortune 150 bank holding company, a Fortune 100 manufacturer of farm equipment, Milken Institute and U.S Foods. We continue to see the trend of global 2,000 companies adopting strategic meetings management technology solutions. Over 100 companies from the global 2,000 attended CMS to obtain deeper knowledge on how to use our platform.
We also saw strong activity within our Mid-market Event management solutions in the second quarter. We closed new subscription agreements with customers such as Forbes Media, Grand Circle Corporation, Microstrategy and Yale University. As I’ve stated before, our biggest competitor remains manual processes. While these greenfield opportunities provide our greatest growth engine, our total platform solution is increasingly resonating with companies that currently use multiple point solutions and is now looking for one integrated simple solution. For example, Yale University had been using multiple web based tools across its various departments. The University wanted to centralize event management with one platform that could be deployed University wide in order to provide global visibility and consistent data analysis. We demonstrated that we could help Yale accomplish this goal and with our API let Yale integrate with other internal technologies with Cvent.
We also renewed or expand our relationships with many of our diverse existing clients, including Aruba Networks, CalPERS and Mass General.
Regarding Mobile, we continue to see growth, growing interest across all types of industries as event attendees are increasingly demanding this type of technology from event organizers. Mobile events are transitioning from a nice-to-have feature to a must-have for a broader range of events. In fact, mobile technology is one of the fastest growing components of our platform.
In the second quarter, we signed new customers such as the Association of Manufacturing Technology, Advanced Star Communications, Trend Micro and the National Retail Federation or NRF. NRF, the world’s largest retail trade association, had previously deployed a mobile app, but it fell short of expectations. They needed a more fluid app user experience. They need to better interact with tradeshow floor maps, more opportunity to self-sponsorship within the app, and a robust client support infrastructure. After a thorough due diligence process, they elected to move their marquee 30,000 person expo, along with five other annual events onto our CrowdCompass solution. Additionally, they bought our social wall product and they’ll leverage it to display sponsor logos, like tweets and Instagram posts from their attendees on walls and screens across the tradeshow.
We also added new CrowdCompass licensings to existing event management customers like NorthStar Financial Services Group, University of Texas at Arlington, American Chemistry Council and American Institute of CPAs. And we renewed or expanded CrowdCompass contracts with organizations including Boston Scientific, Blackboard, DLA Piper and the Retail Industry Leaders Association.
Turning to the other side of the meetings and event ecosystem, I'd like to cover four major trends in our marketing side of the business. First, our focus continues to be encouraging adoption of the supplier network by both planners and hotels. We are not aware of any competitor that has achieved the $6.5 billion of spend that we sourced through our supplier network last year. We continue to see robust RP growth this year as more meeting planners continue to use our supplier network to find the right venue for their events.
On the hotel side, we continue to adopt – to increase adoption with independence, change, luxury and international hotels. In fact, international hotels that might not have known us a year ago are now familiar with Cvent given the increased RP volume that they receiving through our supplier network. This increased volume is the result of selecting Cvent as the partner to support their long-term business objectives, which includes expanding their brands in China with meeting planners for instance. An example of that is ISG China.
Second, while the small part of our marketing solutions revenue that is not subscription based is near-term in nature, the overall trend of the business continues to be up and to the right. We’re in the early days of disrupting the ways that business operates, and our customers are valuing the way many – the many new ways they can leverage our technology. We continue to tweak our marketing products to provide the best value to our customers. As a result, we continue to sign marketing solutions, with numerous new hotels, venues and convention visitors’ bureaus including more multiyear agreements.
New marketing solutions customers in the second quarter include Baha Mar Casino, the Elms Hotel and Spa in Kansas City, and the Four Seasons, Chicago. We continue to have greater success with convention and visitors’ bureaus, and have both international and domestic wins with bureaus representing Curacao Mexico, Red Deer Alberta and Ventura California. We also renewed or expanded relationships with the Hard Rock Hotels and Casinos, the Marriott Hotels and Morgans Hotel Group.
Third, expanding on the Cvent’s supplier network certification programs for hospitality students that I mentioned before, we are now extending our certification program to hotel professionals, bringing this valuable credential to an even wider audience. Planners will also benefit from these certifications as they recognize the knowledge and quality that comes with it. In fact, we just certified all 25 Washington D.C reps of one of the largest global chains. We believe the uptake of our certification programs further demonstrates that we’re becoming the de facto standard group hotel business platform.
Fourth, we have taken great pride in the fact that larger hotel chains are now depending on us as a trusted partner to come up with innovative solutions to the issues that they face. In response, we’re working on several new products that will provide additional value to both hotels and meeting planners using the supply network. We continue – we expect to announce some of these new products later in the year. All these trends point out that we are becoming the de facto standard.
Looking to the future, it's been one year since Cvent went public and the thesis we shared with you then is that the market place will continue to move the meeting planning process from offline to online still rings true. We’re seeing this thesis continue to play out. Additionally, we have stressed that our growth strategy was focused on pursuing new customers, upselling to existing customers, and expanding internationally. The successes I just described are an indication that we’re executing on this strategy. We believe that our future success will be supported by our ability to continue to innovate technologically.
We’ve been able to distance ourselves from the competition with a comprehensive end-to-end platform, including mobile capabilities and an expanding supplier network, but we are not resting there. We continue to introduce new capabilities that further expand our platform. Our objective is to have the easiest to use, but most feature rich platform on the market. To that end, I'm excited to provide greater details about the blue release that I mentioned earlier. The blue release is a significant model that allows us to better serve our expanding customer base. As our footprint within enterprises grow, we’re serving an even more diversified customer base and increasingly diverse universal events. With the blue release, we’ve complement the power and specification of our perform with the ability to intelligently and automatically tailor itself to the different types of users and different types of events. Now we can give an optimized experience to both the power user who is managing large multi-day, multi-track conferences requiring sophisticated budget and travel immigrations, all the way down to the simple one day corporate offsite that needs a basic meeting space and simple agenda for a dozen staff members.
The Blue Release boasts modern day controls like drag and drop design live editing and previewing and interactive charts that enables fast and efficient event creation and management regardless of the size and complexity of the event. We believe we have accomplished this mission based on extremely positive feedback from our beta program and about 200 early of adopter accounts that have already migrated to the Blue Release. Once we complete the conversion of all customers to this new platform, we’ll shift our focus to extending this new - exciting new interface and user experience to additional components of our platforms.
As I introduced last quarter, we began to work on our Enterprise Event Management, or EEM solution that will combine and expand a number of our of solutions, including, marketing, Event mobile apps, Event management, web surveys, analytics, and important third party technology integrations. This package will give chief marketing officers of large organizations the ability to increase attendance and engagement with customers and prospects, which ultimately drives revenue and ROI.
In order to enhance our solutions for CMOs, we recently announced a new partnership with Marketo. With Cvent’s Marketo integration, marketers get a seamless information exchange between their enterprise event management and marketing automation platforms. With Cvent’s Marketo partnership, not only do marketing professionals have a platform to deliver better results, but event activity and attendee behavior is automatically factored in Marketo. This integration allows common customers to leverage their event attendee information in order to build more complete customer profiles so they can create campaigns that accelerate the sales cycle and enhance existing customer relationships. While we’re in the very early stages of developing products to address the market opportunity, we’re excited about the growth that EEM can provide.
As you can see from our accomplishments, we have delivered another quarter of strong growth with results that have exceeded our expectations, while maintaining our long history of profitability. We’re supporting our financial and strategic momentum by making Cvent an important choice. In the second quarter, Cvent was recognized as one of the top ten places to work in the D.C area by the Washington Post, and the best place to work by the Washington Business Journal Virginia Business Magazine. Cvent is the only company to be included in all the three lists this year. These awards are based solely on employee responses to independent third party surveys. It gives me incredible pride to know that our employees are as passionate about executing our strategy as the leadership team.
With that, let turn over the call to Pete for more detail on our financial results.
Thanks Reggie. I’ll first walk through the details of our financial performance for the second quarter and then provide our guidance for the third quarter and full year 2014.
Total revenue for the quarter was $34.1 million, an increase of 27% from the second quarter of 2013 and above the high end of our guidance, driven primarily by better than expected subscription revenue. Within total revenue, platform subscription revenue was $24.2 million an increase of 29% compared to a year ago and marketing solutions revenue was $9.9 million, an increase of 21% compared to a year ago.
Recall that when we provided guidance for the second quarter, we indicated that year over year comparisons for marketing solutions would be challenged in the second and third quarters by unusually high non–recurring marketing revenues from new ad types in the year ago period. These ad types are variable in nature as demand for the products is based on the occupancy need that a hotel might have. Despite this, we delivered growth above expectations in the quarter, with a particularly strong performance in platform subscriptions.
Looking at our P&L in more detail, I’ll discuss our results on a non-GAAP basis. A reconciliation of GAAP to non-GAAP results has been provided in our press release issued after the market closed today. Non-GAAP gross profit in the second quarter was $25.2 million, resulting in a gross margin of 74%, a decrease from 75% in the second quarter of 2013, but in line with our full year expectation of approximately 70% as we continued to make investments to support the long term growth of our business. Longer term we continue to believe that we can generate around 80% gross margins over time.
Turning to operating expenses, non-GAAP sales and marketing costs increased 39% from a year ago as we continue to focus on investing in sales and marketing as we scale our business globally and capitalize on the large underpenetrated opportunity ahead of us.
Sales and marketing expenses were also seasonably heavy in the second quarter as we hosted three major annual thought leader conferences that accounted for the majority of the increase.
R&D grew 20% on a non-GAAP basis from the second quarter of last year, but decreased as a percentage of revenue as we balance investments and product enhancements in the development of new technology with operating leverage. Overall technology spend is higher given that part of IT expenditures are capitalized and part is inclusion in the cost of revenue.
Non-GAAP G&A costs increased 8% from a year ago as we support the ongoing scaling of our business as well as incremental cost associated with operating a public company, partially offset by the reversal of sales tax accruals.
Non-GAAP operating income was $2.3 million or 7% of revenue, consistent with non-GAAP operating income of $2.3 million a year ago. Adjusted EBITDA of $4.6 million represented a 14% adjusted EBITDA margin in comparison to adjusted EBITDA of $4.3 million or to 16% adjusted EBITDA margin in the second quarter of last year.
Non-GAAP net income was $2.4 million in the second quarter or $0.06 per share, an increase from $1.4 million or $0.04 per share in the second quarter of 2013.
Similar to last quarter, in addition to the factors that benefited adjusted EBITDA, GAAP and non-GAAP figures, net income again benefited from lower taxes due to disqualifying dispositions of employee stock options.
On a GAAP basis operating income was $880,000 in the second quarter of 2014 and GAAP net income was $1 million or $0.02 per share, an increase from the GAAP net loss of $2.3 million or a loss of $0.07 per share on a pro forma diluted basis a year ago. Profitability metrics were above expectations due to revenue that was above our guided range as well as lower than anticipated costs primarily related to lower than expected head count related expenses, reductions through expenses that we expected to affect the financials later in the year and delayed starts on certain investments. However, for the year we believe that we remain on track from an overall hiring perspective.
Additionally, we expect that a substantial portion of any delayed investments, particularly in marketing and technology projects, will be incurred in the second half of the year. We are proud of our financial history that balances strong topline growth with profitability. We’ve been able to produce strong topline growth and profitability while still making investments in technology development as well as sales and marketing that we believe will enable us to generate profitable growth over the longer term. While our margins are currently below our historical highs, we will continue to balance growth and profitability and remain confident in our ability to return 25% plus adjusted EBITDA margins overs time.
Turning now to our balance sheet, we ended the second quarter with cash, cash equivalents and short term investments of $190.4 million compared to $201.7 million at the end of the first quarter. The decrease in cash was primarily due to the approximately $9.3 million in costs related to the build out of our new corporate headquarters. Note that in the third quarter, our cash flow will be positively impacted by a build out credit reimbursements from our landlord of approximately $8 million. This is in addition to the $1 million grant we received recently from the Commonwealth of Virginia.
Deferred revenue at the end of the second quarter was $66.7 million, an increase of 28% on a year over year basis and a decrease of 5% from the first quarter. This is consistent with our typical historical deferred revenue patterns of a small sequential increase in the first quarter, quarter to quarter decreases in the second quarter and third quarters and a strong sequential increase in deferred revenue in the fourth quarter. We expect this pattern to continue in 2014.
Now let me turn to our financial outlook for the third quarter and the full year 2014. The healthy business momentum we experienced in the first half of the year makes us increasingly confident in our outlook for the full year. Before providing our updated guidance, I’d like to remind you again that in the second and third quarters of last year, for the marketing side of the business, we had unusually high nonrecurring marketing revenues from new ad types for hotels. This created year over year seasonality that we do not believe that reflects our normal revenue linearity impacting year over year growth comparisons.
Now with that backdrop, looking at the third quarter of 2014, we expect to generate revenue of $36.2 million to $36.6 million, representing an increase of approximately 25% from the prior year. We expect adjusted EBITDA of $3.4 million to $3.8 million. Based on our current investment plans, we expect adjusted EBITDA to decrease from the better than expected results in the second quarter as we anticipate incurring delayed marketing and IT investments in the second half of the year. We continue to anticipate a meaningful sequential increase in adjusted EBITDA from the third to fourth quarter.
From a net income perspective, in the third quarter we anticipate a non-GAAP net income in the range of a loss of $300,000 to income of $100,000 or a loss of $0.01 to break even per share. That’s based on an estimated $41.4 million basic and $43.1 million diluted weighted average common shares outstanding. Adjusted EBITDA and non-GAAP net loss guidance for the third quarter excludes stock-based compensation expenses of approximately $1.2 million, and acquisition related costs of $300,000, and office relocation cost of $300,000. Adjusted EBITDA excludes these expenses as well as interest income of approximately $400,000, a tax expense of approximately $800,000 and depreciation and amortization expenses of approximately $3.3 million.
Excluding these adjustments, for the third quarter we anticipate a GAAP net loss of $2.2 million to $1.8 million or a loss of $0.05 to $0.04 per share based on an estimated $41.1 million basic weighted average common shares outstanding.
Looking at the year as a whole, we anticipate full year revenue in the range of $140 million to $141 million, representing approximately 26% to 27% growth from a year ago, and an increase of $1 million at the midpoint from prior guidance of $138.7 million to $140.3 million, reflecting our second quarter over performance, and a continued momentum we see in our overall business.
We’re increasing our 2014 adjusted EBITDA expectations to be in the range of $14 million to $15 million, representing an adjusted EBITDA margin of approximately 10% at the midpoint of our guidance ranges, consistent with prior guidance. Full year adjusted EBITDA guidance considers the reinvestment of our upside in the first half of the year into sales and marketing and technology.
For the year, we expect non-GAAP net income of $1.5 million to $2.8 million, an increase from the prior guidance of $400,000 to $1.6 million. Based on an estimated $43.1 million diluted average weighted shares outstanding, we anticipate non-GAAP net income to range from $0.04 to $0.06 per share.
Our non-GAAP guidance for 2014 excludes stock-based compensation expenses of approximately $4.6 million, acquisition related cost of approximately $1.4 million and office relocation costs of $300,000 and foreign currency gain at $400,000. Adjusted EBITDA excludes this cost as well as interest income of approximately $1.5 million, and tax expense of approximately $2.3 million and depreciation and amortization expenses of approximately $11.5 million.
Excluding these adjustments, we anticipate a GAAP net loss of $4.3 million to $3.1 million, or a loss of $0.11 to $0.08 per share based on an estimated 41 million basic average weighted shares outstanding.
In summary, we are pleased to have exceeded expectations again in the second quarter, delivering 27% revenue growth with continued strong profitability metrics. We continue to expand on our leadership position in the marketplace, giving us confidence to increase expectations for 2014. We are optimistic we can continue to build on our leadership in the years ahead.
Operator, we can now open the call to questions.
(Operator Instructions) And the first question comes from Brendan Barnicle from Pacific Crest Securities.
Brendan Barnicle – Pacific Crest Securities
Great. Thanks guys. I wanted to check on the international expansion. I know you guys have made some efforts there. I was wondering if you could give us any more color on how that’s gone through in the quarter.
Hey Brandon, so good question. So a couple things. We opened up as you know our London office about a year ago. So that’s expanded quite a bit a lot just in the last quarter. Matter of fact, we just added about 10 people that are actually starting on Monday, and they’re coming here for training for about a month before we send them back. So playing off our London office, I think we’re going to continue to see great growth and we believe in it. The number – the percentage of our growth has been going from 10% to 11% in terms of our revenue. And then in terms of what we’re generally seeing, we are seeing an increased adoption of all our products, in particular with our supplier network as more U.S planners start using us in their global offices.
That’s a big driver for our CSN, but we’re getting more adoption also from customers that are based actually in Europe and that aren’t U.S based. The market there is a little less mature in adopting software, but the good news there isn’t any big competition that’s based out of there. And with our London office, we have a small office in Germany. Again a couple of sales folks in Australia and our India office, we’re able to really leverage that workforce and we think we’re positioned to get a lot more of that market share as it matures.
Brendan Barnicle – Pacific Crest Securities
Great. And following up on your competition comment, what are you seeing on the meeting planning side? Competitively we’ve seen sort of I guess post the IPO more – at least I've become aware more of these website options that are out there, some of the freer options that are out there. Are those guys showing up anymore in the market now that you guys have sort of validated the space?
Yeah. So those companies have been around for a long time. This isn’t a new phenomenon so we don’t really see any major impact from them. And so nothing has really changed on the competitive side except that as the market gets bigger we are positioned in terms of a leadership role particularly in the business area. So I think the first comment is again the biggest competitor we have is manual processes and that continues to play out. The vast, vast, vast majority are mostly point niche solutions. And so where we are doing well with them is getting our platform, the integrated simple platform and as we continue to round it out, that’s what really winning the market. But no real major change with those free competitors and I think as the market matures again having that platform will continue to resonate with customers.
Brendan Barnicle – Pacific Crest Securities
Great. And then lastly, Pete, just quickly for you, that $8 million in credit that you are going to get from the landlord, does that show up as a positive to purchase the property and equipment? Where do we see that on the cash flow statement?
That will be -- it will show up in the operating section of the cash flow statement and it will be a next quarter Q3 event. It will not be netted against fixed assets.
Thank and the next question comes from Jennifer Lowe from Morgan Stanley.
Jennifer Lowe – Morgan Stanley
Thank you, I wanted to just follow up on to the Marketing Solutions Business a little bit and in particular just – I know last quarter you called out the tougher comparisons in Q2 and Q3. But I think the deceleration was maybe a little bit more than what we had expected. So would it be possible to just talk through a little bit around what exactly the impacts in Q2 of last year were? Was it revenue that that was sort of – I know it was unusual, but as you think about recurring revenue in terms of -- nonrecurring revenue in terms of a product that you continue to sell versus something that was truly a onetime event, can you just help us understand exactly what those dynamics are there in terms of creating the tough comp that we saw this quarter?
Jennifer, great question. So first I want to first start off that the number one focus as you guys know and we hopefully have been very clear is adoption and that means on the hotel side as well as the planner side. So first from a planner adoption side we are continuing to see great momentum there. We did $6.5 billion last year, up from $50 million of you recall. But we continue to see a lot of adoption and the trends are really good from a planner adoption. And these are the early days. So when you are disrupting a space you’ve got to put some investments in that adoption. And so we are pleased with that.
Having said that though, we do have a portfolio of products and on a quarter to quarter basis you are going to see variability and relative growth rates of our revenue lines. We did have tough comparable last year as you mentioned and we had mentioned earlier, but they are in unusually high nonrecurring marketing revenues from new ad types. Now the thing is that the ad types are being received well and when we first launched them, the ad types were received a little better that we had thought in the beginning. And so that’s why it did create a higher comp set.
And having said that we are still seeing robust growth not as quite as we did there on a percentage basis because we obviously have to increase that growth. But we still – these are not one time things. These are things that are products that are solid. They need to tweak to them because as we mentioned we had never done them and it’s just literally been now our first cycle because it’s been just about a year now. And so now we are starting to understand them more, but they are one time things. It really was the fact that it was that high comp rate and it was just nonrecurring revenue that we are just starting to be able to get a better grip on.
If I can add -- Pete here, if I could just add, this revenue was lumpy in nature. It’s not the typical annual contracted spread over time. It’s an advertisement that goes into some kind of an outlet, say a newsletter or something and as soon as the newsletter goes out, we recognize the revenue. Just had a heavy concentration in those two quarters. The demand for this is need based. As hotels look ahead and they see where they have holes in their occupancy, that’s when they start looking for this type of advertising. So that’s going to vary over time.
And the one thing I wanted to stress is this is just literally just a few percentage of our overall topline revenue for the quarter, so the new ad types. So it’s still a small components. So the vast, vast majority of our business is very predictable. This was new and but we are, give us a little bit of time and we’ll be better able to predict it.
Jennifer Lowe – Morgan Stanley
And maybe just extending that a little further as you think about the bread and butter Marketing Solution Business in terms of ad placement, the banner ad placement around the Cvent supplier network, as you think about the pricing trends there as the premium sites or the premium ad placements come up for renewal and the interest in that, if you think about the pricing trends on that core business, has that been pretty consistent with what we’ve seen over the last couple of years or was there any slowdown there? How would you – if you could strip out that non-recurring component as it trends sort of what we would have seen in prior quarters or was there any change there?
Yeah. So generally we’re continuing to see good – strong growth in that, but let me qualify a few things. What happens is that and we mentioned this a couple of quarters ago that our price increases weren’t as high as they were in previous years. Even though our volume has been increasing, we just can’t quite get the same increase in the prices. So that’s one trend. The second trend is that as we go international, it does take us time to build that up because we’re starting from a low base of RP volumes. Let me give you example. If you go to Istanbul, we don’t have that much RP volume. It's going to take us a little bit of time to build that before we can sell advertisement internationally.
So the international, we’re putting a little more effort. So, all that combined does slow down the growth a little bit. But again, our focus as you know was adoption from the planners and the hoteliers. And then over time you’re going to see us as we bring more value, there are a variety of things that we can do to increase that revenue because hotels I think are very eager to invest more as long as they getting more group business and seeing new innovate products and that will happen as we get more adoption, and that we – when we launch some products which I'd mentioned in the call earlier that we are launching some new products that we’ll mention later on in the year that will continue to add value.
Jennifer Lowe – Morgan Stanley
Actually maybe just to follow up on that last one when you mentioned the new products and I don’t want to make you tip your hand earlier again, but just as we think about what the new products potentials are, is this going to be something that is expanding inventory on the advertising side? Or is there a thought towards expanding the array of services and potentially software that you can sell directly to the hotel?
It's actually a combination of both. It includes those plus we’re going to be– we’re going to be – and it’s not going to happen in the fourth quarter for this part I'm going to talk about. But we will for example upgrade the – increase the user interface as well as some of the navigation which will help in our international adoption. We will have some new ways of monetizing through advertisement as you mentioned, and then also combination of doing other areas that we’re going to be able to get more value to the hotel. It's hard for me to comment right now because you’re right, we are – we’re going to be talking about this more when we launch them in the market, but it is going to happen this year. And I think that they will begin new ways for us to monetize. And it's new incremental business as well.
Thank you. And the next question comes from Greg Dunham with Goldman Sachs.
Greg Dunham – Goldman Sachs
Thanks for taking my question. I want to switch gears a little bit. We’re seeing gross margin tick up here for the second consecutive quarter in a row and we’ve also seen your EBITDA margins obviously tick up as well. What should we expect on those lines going forward? And how do you balance growth versus profitability at this point in time especially given the market backdrop that we’re seeing?
Yeah. So good question, Greg. From a gross margin perspective, we came in at 73.5%. We’ve been guiding to around 70% like where we’ve been in the last quarter or two. We expect to remain in the low 70s. In this particular quarter, there were some benefits flowing into that number that we would not have expected to see this quarter. Reduction of bad debt expense which was kind of a one-time adjustment, appropriate adjustment but it flowed into that number. Also didn’t hire as many customer service folks and the cost of those people flowed directly into that number. So looking ahead, I’d continue to look at the low 70s figure. From an adjusted EBITDA standpoint, you look at this particular quarter and we had some reduction of employee related expenses, hiring that was weighted towards the end of the quarter, and some projects that we’ve pushed into Q3 and Q4. So this overs that we’re looking at we expect to reinvest that going forward which is why we are maintaining our guidance of roughly a 10% adjusted EBITDA margin for the rest of the year.
Greg Dunham – Goldman Sachs
Okay. Perfect. And then I guess – go ahead, maybe Reggie?
I was just going say that the other thing I'd offer is, as the company continues to scale, we do and I mentioned this in the script, we expect to get to an 80% gross margin over time.
Greg Dunham – Goldman Sachs
Hey Greg. This is Reggie. I just want to comment. So again, the big picture is that, this is a large greenfield opportunity. We do have plenty of money in our balance sheet. And so we just think we’re going to continue to invest because that’s the right thing to do because we’re expanding – to extend our market leadership position, that’s the best way to use our money, not just putting more money in our balance sheet frankly. That’s kind of one. The second thing is in terms of the EBITDA. There were some small adjustments and some programs that we just didn’t get launched in time that we will launch. Again, a lot is going on in the company. And we’re always are very frugal when we do it, but we do anticipate spending that money and increasing that spend in Q3 and Q4. It's just some of that expense will just be pushed off because it just takes time to put some of those programs in place.
Greg Dunham – Goldman Sachs
Okay. Then last question for me, a different one as well is the new release that you announced at the customer conference this quarter, what was the customer feedback on that release? And what friction does that I guess – how does that improve your ability to go to market going forward versus maybe where you’ve been historically? That’s it for me. Thanks.
It's a great question. So, a couple of things. So we’ve got 200 customers now on the tool as we mentioned. Basically by the end of the year our entire customer base will be on it. So we’re moving everyone to that. We’ve gotten great feedback on the product because frankly it simplified the experience. It made a better user interface but also more robust functionality. Now the primary focus on it was actually – I guess in a simpler experience and better user interface, but it's also all the backend work we did. So for example, we’ve been spending a lot of time just taking the product and making it so that we can globalize it or localize it and some of those areas are backend. So a large part of our efforts more from our tech team for the last frankly 18 months has been spent doing this new Blue Release because a lot of it is backend that you don’t see really impact the customers, but allows us now to do things like localize our product, add more modules easier. And then of course the user experience was better. So overall, we’re extraordinarily pleased with the feedback. We think it is going to make a difference in the market because now we have the simplest product, the most user friendly and then we have the most robust and so we think that we are positioned well and this was a very well worth effort to do.
And Greg, it’s Chuck. Just from the customer lens, specifically I think they are loving the modern control like the drag and drop. We really took a thoughtful approach in this and that we had alpha and beta customers that [inaudible] while we were building out the Blue release. And so it really was a lot of customer feedback. And then we have a rollout plan like we said that we are currently on track for to get this done by the end of the year, but basically very effusive comments from the customers overall with the Blue release. And then we’re going to take those learning lessons and begin to apply them to other aspects of the platform like the Cvent supplier network. So this current Blue release is really focused on the event product and administration tab and then we are going to take those learning lessons and continue to expand it across the entire platform in the coming quarters.
Thank you and the next question comes from Tom Roderick with Stifel.
Tom Roderick – Stifel Nicolaus & Company
Hey gentlemen, good afternoon. First question, I wanted to dig a little bit more on the mobile side. It seems like mobile is a pretty white hot topic out there in the event management world. You guys certainly should be capitalizing on it with CrowdCompass. Can you talk a little bit more just about the go-to-market with Mobile today, how you are successfully selling that, what the opportunities are to cross sell it and what that means for the structure of the respective sales forces across the various product lines.
Yes. Tom, thanks for the question. What we’ve done on the go-to-market strategy on that is first we have a separate sales team that sells just the CrowdCompass mobile app. So that’s one team. We actually have two teams which I’ll talk about and they’re kind of our Special Forces team and they go into customers that just want our CrowdCompass. But then we have our Event team. All of them are equipped to sell it because again the platform play it comes up in a lot of our conversations, actually the majority of them when we’re looking at our Event. Sometime they don’t want to buy Event and then the Events salesperson will say hey, how about I sell you mobile apps? How about we try to sell you the platforms? So the bottom line is we have a very large distributed sales force now deployed to selling it not just a dedicated team which is what gives us a lot of bandwidth.
But throughout the organization since mobile is so big is the whole organization pushing it, including our account management, even our customer service people when an Event customer is calling they’ll bring up, hey, have you tried, thought about a mobile app product. And again it’s only early days because still the vast, vast majority, if you remember the size of the market, basically less than 2% or 3% of events that need a mobile app are still using it. Maybe it’s up to 5% now. But there still is – it’s the early innings and it’s not a must have necessarily even though it’s increasingly becoming that way. But the thing is with our AM team, as we look at all our Event customers these pharmas which again our AM team they are bringing mobile apps and we are getting a lot of cross sells. So what’s happening is that it’s deepening our relationship with our customers. Obviously when they have our Event tool and our mobile app so there’s the benefit of renewals. There’s the benefit that we are able to get in with either the mobile or the Event and then cross sell the other. So overall the trends are great. We are positioned really well and we are putting a lot of investment in it because we know that’s the future.
Tom Roderick – Stifel Nicolaus & Company
Great. And Reggie, I know you don’t break down break down necessarily specifically by product line, but it seems like you are getting enough contribution from SMM and mobile and maybe even ticketing at this point. Can you give us a sense as to which of those are driving the highest contribution to growth or maybe just rank order them in terms of which are the biggest revenue contributors at this point overall?
You know we don’t break it, out but just to give you a sense, I think and part of is also when you have a smaller revenue line. It’s easy to grow bigger as you know and some of the larger products for the revenue lines are bigger to grow on. But I think you probably can ascertain that some of the areas that we are seeing a lot of growth in -- the fastest growth is Mobile for sure. You are seeing in the ticketing that’s a new space for us and we are bearing some growth in that area that’s beyond our core growth. And then I would say our SMM because our enterprises are adopting our platform which affects our Events registration, our Mobile and our CSM but we classify that in our SMM. But those are some of the more, the products that are resonating on a higher growth rate. But again what I’ll tell you it’s a little bit because their revenue lines are a little smaller. That’s part of it, but I think also because we are the clear market leader in some of these areas.
And so those are the new ones that I think are -- the newer products are giving us a little more high growth rate. But I just want to make sure you know that all of them are growing at a very nice clip and we’re very pleased with the growth, especially when you look on an annual level. Quarter to quarter some grow faster than others and there are shifts liked our CSN. I know the growth wasn’t quite as robust as some of you might have expected, but again you have fluctuation quarter to quarter. So we look at it basically our products are a bunch of pistons and some of them hit one quarter, some another but overall we have a very consistent play with them because just the diverse products that we have and then of course ultimately the platform which we’re getting more people to get.
As there are no more questions at the present time, I would now like to turn the call back over to Reggie Aggarwal for any closing remarks.
Sorry about that. I was looking for my script. Thank you again for joining us all on our call today. We’re pleased to see our momentum continue with strong second quarter results that exceeded guidance combining robust growth with healthy profitability with a strong start to the year. We’re well positioned to continue with the momentum through 2014 and capitalize on the significant opportunity ahead of us. Thank you for joining us.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Have a nice day.
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