SciQuest's (SQI) CEO Stephen Wiehe on Q4 2015 Results - Earnings Call Transcript

| About: SciQuest, Inc. (SQI)

SciQuest, Inc. (NASDAQ:SQI)

Q4 2015 Earnings Conference Call

February 04, 2016 4:30 PM ET

Executives

Jamie Andelman – Head of Investor Relations

Stephen Wiehe – Chief Executive Officer

Jennifer Kaelin – Chief Financial Officer

Analysts

David Hynes – Canaccord Genuity

Matt Pfau – William Blair

Eric Lemus – Raymond James

Matt VanVliet – Stifel

Jeff Houston – Northland Securities

Jeff Van Rhee – Craig-Hallum

Brendan Barnicle – Pacific Crest Securities

Peter Lowry – JMP Securities

Operator

Greetings, and welcome to the SciQuest Fourth Quarter and Full Year Results Conference Call. At this time, all lines have been placed on mute to prevent background noise. After the company’s prepared remarks, there will be a question-and-answer session. [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, Daniele, and good afternoon, everyone. Thank you for joining us to review SciQuest’s fourth quarter and full year 2015 results. Hosting today’s call are Stephen Wiehe, SciQuest’s Chief Executive Officer; and Jennifer Kaelin, our Chief Financial Officer. On today’s call, Steve and Jennifer will deliver prepared remarks, after which we will hold a question-and-answer session.

During this call, we will be making 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, plans, 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. Also available for download on our site, is a quarterly overview presentation that contains additional information regarding our performance and expectations.

Additionally, we will be discussing non-GAAP financial measures during this conference call. When possible, SciQuest provides all information 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 a filing on Form 8-K and is available on our website and on the Edgar system, the reconciliation of the non-GAAP financial measures for which we are able to provide the most directly comparable GAAP financial measures.

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.

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 Wiehe

Hello and thanks to everyone joining us today. In the fourth quarter we delivered financial results that were above the high end of our quarterly guidance ranges. We produced our highest adjusted EBITDA margin in more than three years and we posted another solid bookings quarter.

As I’m discussed on prior calls, the first half of 2015 was challenging. However in the fourth quarter we built upon the progress that we made in Q3 and demonstrated the value of our strategic investments in the business. Our second half of 2015 results provides us with even more confidence that we are on the right trajectory to grow revenue and enhance our already healthy margins in 2016 and beyond.

Fourth quarter revenue was $26.7 million and full year non-GAAP revenue was $105.4 million. Non-GAAP EPS was $0.09 in the fourth quarter and $0.29 for the full year. Our adjusted EBITDA margin was 19.1% in 2015. These all exceeded the full year guidance that Jennifer initially provided in July as well as in October when we increased expectations for a few items.

Adjusted free cash flow for the year was $9.3 million, representing a 9% margin. It was within our guidance range. Fourth quarter cash flow margin was even higher at 24% reflecting typical seasonality. The factors that drove our booking success in the third quarter were also would play in the fourth. We continue to see increase demand for our unified platform, which help grow our Q4 new customer average selling prices by approximately 20% above the rolling fourth quarter average.

This was significantly above the levels we saw in the – in prior to completing the rewrites. These higher ASPs where once driven by robust multi-module sales. In fact for the second quarter in a row, more than half of all new deals were multi-module purchases which bolster our convection that we will continue to generate high average selling prices. We signed 14 new customers across all our verticals in Q4, including Tulane, the Minnesota State College University Systems, United Therapeutics, LA Care and Wayne County in Michigan. Improving sales productivity was not only evident with new customers, but also in the healthy cross selling additional modules to existing customers.

As usual, we closed a number of up sale deals in the higher education space with a couple in the six figure range, which is well above the average. Higher education was our best selling team in the quarter. Their success was primarily the results of solid executions and represented good deal flow from both new and existing customers. Our commercial team had another successful quarter and generated more bookings in Q4 than they did in Q3. Similarly to the third quarter, they closed a couple of multi-module deals in under six months, which is significantly faster than historical sales cycle times.

In addition, two of the up sale deals we signed in the fourth quarter in the commercial market, it included at least four additional solutions. Customers – where customers were dramatically increasing their annual licenses and commitment to SciQuest and our technology. E-procurement, advance sourcings and contracts were the top three selling solutions in the quarter. The strong demand for e-procurement and contracts reflects the growing recognition of the benefit that our cohesive platform provides.

Another part of our sales success in both the quarter and the year has been marketing’s ability to enhance lead generation, providing the sales team with a significant flow of high quality leads. All of will take time to see the full impact from our brand relaunch in November. The trend validates our expectations for gradually increasing revenue, especially within the commercial market. So Q4 provided a strong finish to 2015.

Looking at the year, I’m proud of our ability to execute against our long-term priorities of the proven growth and profitability. During the year we signed a record 58 new names. However, follow-on sales to existing customers are just as important. In fact, in 2015 we’ve had roughly equal split of sales to new customers, as well the sales to existing customers.

2015 cross-selling benefited from the multiple large deals, due largely to the four solutions that we rewrote. These rewritten solutions were delivered on time and on budget. They also included more features and functionality that were included in the original road map. The value of our new cohesive platform is reflected in the overall success in the second half of the year, but particularly in our increased ability to close multi product deals.

It not only generated enhanced growth drivers in 2015, but we also increased operating efficiencies that produced higher EBITDA margins in Q3 and Q4. In 2016, we plan on capitalizing on the investments we’ve made in the business. Drivers were gradually accelerating top line growth include, monetizing our differentiated platform, improving sales productivity and increasing momentum in the commercial market. We saw evidence of – each of these in the fourth quarter, which supports our confidence about the future. On the profitability front, we expect to benefit from operating leverage and further efficiency gains in 2016, enabling us to extend our track record of delivering significant margin improvements in both 2014 and in 2015.

In conclusion, we’ve invested in our software suite as well as our sales and marketing in 2015, which drove the improved second half results. We’ve accelerated revenue growth at each of the last – each quarter in the last year and we expect steady revenue growth in 2016 as well as increased profitability and free cash flow.

Most importantly we are in the great position to meet or exceed all of our short and long-term expectations we set, with Jennifer’s first earnings call. We certainly have more work to do, but I am very pleased about with our current course and speed.

Now I’d like to turn the call over to Jennifer.

Jennifer Kaelin

Thanks, Steve. Fourth quarter revenue was $26.7 million, which was $100,000 above the high end of the guidance range. Non-GAAP gross margin in the quarter was 72.1%, representing a 1.4 percentage point increase from Q3, due to higher revenue and improved efficiency.

Non-GAAP operating expenses were $15.3 million, or 57.4% of non-GAAP revenue, 1.4 points higher than last quarter. This is primarily due to the shift in marketing spend from 3Q to 4Q that we mentioned on our previous earnings call.

Adjusted EBITDA was $5.8 million or 21.7% of revenue, slightly above 3Q margin. Non-GAAP EPS was $0.09 or $0.01 above the high end of our guidance range. For the full year, non-GAAP revenue was $105.4 million which was a $100,000 above the high end of our guidance range.

Non-GAAP gross margins were 70.8%, a decrease of 1.4 percentage points from 2014 level, largely due to higher amortization of software development cost. Non-GAAP operating expenses were $61.5 million or 58.4% of non-GAAP revenue. This represents a 1.3 point improvement from last year, primarily due to higher revenue and lower R&D cost.

Adjusted EBITDA was $20.2 million or 19.1% of non-GAAP revenue, slightly above guidance and 0.2 points above last year’s level. 2015 non-GAAP EPS was $0.29, which was $0.01 above the high end of our guidance range.

Moving to the balance sheet, we ended the quarter with $143 million of cash. Operating cash flow for the year was $18.3 million. Property and equipment purchases and capitalized software development costs were $2.8 million and $6.2 million respectively, resulting in free cash flow of $9.3 million. We are introducing a few new metrics this quarter, in order to provide better transparency and visibility. The first is growth of annualized recurring revenue or ARR. We define ARR as recurring fees in the last month of a period multiplied by 12.

The second is churn as a percentage of ARR. Churn is defined as the annual value of recurring fees from lost customers over the previous 12-month period, divided by ARR. We believe that ARR growth helps provide additional insight into our 2016 revenue guidance, as well as the progress we’re making towards returning to double-digit revenue growth. In a similar vein, while we are making progress towards a return to our historical levels of recurring revenue retention of at least 100%, we think churn as relevant metric to provide.

ARR growth at the end of 2015 was 6%, compared to ARR growth at the end of 2014 a 5%. 2015 churn was 4%, a 1 percentage point improvement from 2014. Our recurring revenue retention rate improved to 98% in 2015, a two point improvement over 2014 levels. We expect to drive further improvements in ARR growth, recurring revenue retention rate and churn during 2016.

Moving on to guidance, based in part on the success we’ve had in both Q3 and Q4, we expect better financial results in 2016, compared to 2015. In terms of revenue, we expect to see gradual growth through the year. By the fourth quarter, we expect to generate year-over-year growth in the mid to high single-digit range. We also anticipate improvements in adjusted EBITDA margins and EPS due to operating leverage and further efficiencies.

As we communicated last – in our last call, despite paying approximately $2 million more in cash taxes in 2016, we expect to grow both free cash flow and free cash flow margins in 2016 compared to 2015. Therefore, for full year 2016 we expect revenue between $109 million and $111 million, adjusted EBITDA margins of approximately 21.5%, non-GAAP net income per share between $0.32 and $0.34. And free cash flow between $11 million and $13 million. And we expect the following for first quarter 2016.

Revenue between $26.7 million and $26.9 million and non-GAAP net income per share between $0.07 and $0.08.

In summary, Q4 represented another quarter of meeting or exceeding expectations. 2016 guidance calls for improvements to all key metrics that we expect to continue in future years. Specifically, we expect to begin to generate double-digit year-over-year quarterly revenue growth rates in 2017.

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

Question-and-Answer Session

Operator

Certainly, we will now be conducting a question-and-answer session [Operator Instructions] Our first come from David Hynes with Canaccord Genuity.

David Hynes

Thanks a lot guys. So it’s sound like higher ed back on track in the quarter. I know in the past you guys have talked about kind of elongating sale cycles in that segment – in the public sector segment. Maybe could you just update us on kind of what you seeing in terms of sale cycles in the quarter and then maybe what you have seen so far in 2016?

Jennifer Kaelin

Yes, thank you. So in terms of sales cycles and higher ed, I think they are consistent with what we’ve typically seen. We did see a couple of shorter cycle deals in higher ed, but I would not characterize the overall higher ed business as improving sales cycles. I think we saw couple, but buy and large, it’s consistent with where it had been. You’re correct, we did see higher ed, was our top performer for the quarter. So we do believe the higher ed will continue to be a key part of success in the future. But again, the largest area of growth for us is going to be the commercial market because that is for us the largest damage for us.

Stephen Wiehe

This is Steve. Wondered, so the question I think is – the root of the question is what’s driving it. As we’ve talked in previous calls we’ve made a significant amount of investment in the sales organization last year and what we’re starting to see is the results of that investment. The team that we have in the public sector and higher ed space is more mature, it’s been in their territory for a while. And so we’re pleased with the results we’re seeing because of the new managements and the new processes. And so we expect the results that we saw in fourth quarter to continue. So it’s not – it’s not a one-time lift, but really it’s just a maturation of the investments we made with those resources.

David Hynes

Yes, that makes sense. And then, it was obviously good to see cross-sell as a percent of bookings, I think you said it was half for the year. Just remind me of the sales structure, the different reps for the land versus expand component of bookings, and then maybe how comp varies on those deals?

Jennifer Kaelin

So, in terms of 2015 we had – the kind of executive covered both land and expand. We are making some changes for 2016 to have that new name carrier versus up sale for the 2016 sales breakout. But from a compensation perspective, they’re compensated comparably in terms of how the comp is structured, their quote is maybe a little bit different, but overall the comp structure is similar.

David Hynes

Okay. Got it. Okay, that’s great. I’ll pass the line. Thanks, guys.

Operator

Our next question comes from Matt Pfau with William Blair.

Matt Pfau

Hey guys, thanks for taking my question. I just wanted to dig into the guide, specifically the revenue guidance for 2016 a bit. And I know you talked about some factors that you expect to happen and drive growth, but when I think of in terms of sales productivity and cross-sell and improvement in churn, can you maybe give us some detail on what you factored in there, when you think about that 2016 guidance in terms of, I guess, for example, are we expecting a significant improvement productivity or what are you factoring in there?

Jennifer Kaelin

So I think consistent, which I’ve talked about my guidance philosophy over the last several quarters is, nothing has changed in terms of that philosophy. So it is a balanced approach, balancing risks and opportunities. As I’ve said in the prepared remarks, I am expecting churn to gradually improve, and recurring revenue retention to improve and ARR to improve throughout the year. So I’m not expecting radical shifts, but I am expecting all of those metrics to continue to improve throughout the year.

Similarly with sales productivity, we saw productivity continue to improve during the back half of 2015. And Steve mentioned earlier, the sales team – the tenure – the more tenured, the product is resonating well with the market. We would continue to see the same types of gradual improvements that we’re seeing continue into 2015 and that’s been factored into the guidance.

Matt Pfau

Okay. And then in terms of the cross-sell that you guys are seeing, is it mainly the four replatform products or is it just sort of a combination of – now that those are replatformed, you’re seeing a pickup in cross-sell of the other solutions as well?

Jennifer Kaelin

So, cross-sell as a whole, we’ve always tried to target about a 50-50 mix between business from new customers versus cross-sell. What we’re seeing from the rewrite is the healthy uptick in cross-sell and customers that had been point solution, customers in the past. So we’re seeing an increased stability to land and expand with those customers. But it’s been across the board in terms of the product. There’s been no specific product that’s been the key up sale driver.

Matt Pfau

Got it and one more for me on the large deals that you mentioned in the higher ed space. I guess, first was the size of those deals driven by the customer size or was it multiple products that drove those to be large deals? And then, excluding maybe those I don’t know, if you would consider outliners or not would we still be decently up in terms of ASPs and deals for the quarter?

Jennifer Kaelin

Correct, so the ASP growth for the quarter definitely been due to the increase in multi-module deals. So it’s not attributed to a larger customers, it’s attributed to a larger footprint that the customers are taking. Does that help?

Matt Pfau

It does, and thanks for taking my questions.

Operator

Our next question comes from Eric Lemus with Raymond James.

Eric Lemus

Hey guys, thanks for taking the question. Following up on the last question as far as ASPs, looks like two quarters in a row had some pretty nice gross in the ASP metric. Now when look into your pipeline for the rest of 2016 is there – do you expect that ASP trend to continue or as you said in the last quarter there was a large higher ed deal that kind of skew that, but looking to the pipeline how this setup when you’re looking your guidance?

Stephen Wiehe

So, we do expect the ASPs to improve over the next couple of quarters, and that’s driven by the fact that the investment that we have made in terms of rewriting the products, putting them under unified platform is showing customers are wanting to buy larger footprints of the product when they initially become a customer, as well as we’ve been able to get price increases based upon these two products. And so, we expect to see ASPs continue to trend upward throughout the year. I would – can say you though, we’re not expecting it to see double, but it’s – as we said in our remarks we are seeing a gradual improvements of everything of all of our steps in the second half of last year. And we expect that gradual improvement rate to continue well in the 2016.

Jennifer Kaelin

Do we had talked, I think last quarter that if you look back to historical ASPs we would continue to see it being higher than historical, but to Steve’s point I wouldn’t expect 50% or 40% ongoing quarter-over-quarter improvement, but again compared to where we were in 2014, I would expect the trend to continue to be much higher than what it was in 2014.

Stephen Wiehe

We’ve also got a couple of new products on a particular that we’ll be announcing early this year. And so, as we continue to add new products to the portfolio that will – I think also helps us from an ASP point of view.

Eric Lemus

Okay. Great, that’s good perspective. And then as far as the replatforming, can you talk a little bit about the ramifications on the replatforming, not only on the R&D expense but the leverage also coming from gross margins in the near-term and the long-term?

Stephen Wiehe

So, I’ll talk about the operations and then Jennifer to talk about the margin impact. The replatforming has been very helpful to us. It has allowed us to take a lot of resources that were being used to support the old products, to move them on to the new products. The new product entered the replatforming has really helped us from a sales and a market point of view. These new products have been very widely positively received by the market. And I think is really helped us from a sales point of view.

We believe that where we are today and you can talk to the industry analysts, they will tell you we have a – we have probably the most unique product portfolio that’s available in the market. Our plan for 2016 is to continue to build on that lead, and continuing to build a larger and more innovative product set which we believe we will be paid back for – with the top line growth as well as from a competitive dynamic point of view.

Jennifer Kaelin

And then from a margin perspective, we’re looking at going from 19% adjusted EBITDA margins roughly for 2015 to 21.5% for 2016. And how I would characterize that is – there’s going to be a decent amount of that margin improvement coming from gross margin, I would continue to see some improved margin expansion in gross margin with a little bit as well coming from R&D. So that’s where I would attribute a lot of that margin expansion coming from.

Eric Lemus

Great, got it. Thanks guys. Nice job.

Stephen Wiehe

Thank you.

Operator

Our next question comes from the Tom Roderick with Stifel. Mr. Roderick, your line is live.

Matt VanVliet

Yes, sorry, this is Matt VanVliet on for Tom. First question with regard to the brand repositioning and the additional marketing spend, obviously, it’s pretty new. But can you talk a little bit about, maybe the difference you have seen in sales lead generation, the quality of those leads? And then how that’s affecting your pipeline as you look into 2016?

Jennifer Kaelin

Sure. So there’s two aspects going on. Number one is, our new CMO Karen Sage, who came on board during Q2 of last year, and all of the work that she’s been doing from a positioning perspective, and changing how we do some of the things in marketing, as well as the brand relaunch, which occurred late November. So, in terms of leads generated, leads have gone up in terms of deals closed from marketing leads that as well has increased healthy number, our percentage from 14% to 15%. In terms of the brand relaunch, since that only occurred in late November, it’s still little early to see the full impact of that. But our web traffic has been up significantly since the brand relaunch. So, we believe all of the work that her and her team have been doing to improve both the quantity and the quality of the leads, as well as getting more name recognition and brand recognition in the commercial space. We’re starting to see some early returns on that and we should expect to consider, continue to see better returns next year in 2016.

Stephen Wiehe

I think the other important piece to point out is, we believe our investment level in marketing in the past years has been sufficient. We’re not planning. The nice thing about it is, Karen really feels like she has a robust budget and so she believe – there is a lot of things that we’ll be doing this year. But it’s not going to – it’s not going to require additional funding from our current levels.

Matt VanVliet

Okay. And then looking at headcount across the company, where did you make investments in 2015, where kind of the total headcount shake out and then what’s the co-recurring sales force growth look like in 2015 as we move into 2016 and think about how that might impact your growth?

Jennifer Kaelin

So from an overall headcount perspective we actually ended 2015 with less heads than we started 2015 with. And that is really a testament to the operational efficiencies that we’ve been talking about both in general, primarily with the operations in R&D organizations, as well as the leverage that we’ve gotten from the rewrites with the new products being easier to support, easier to implement, easier to develop on and needing less resources on the older products.

So, overall headcount has come down from a sales staffing perspective. As we’ve talked about the last couple of quarters, we believe we have ample sales capacity to meet our targets for 2016. We continue to see productivity improve. And we believe we have the appropriate sales staff to generate our targets for 2016. So, we don’t at this point need to – need to add any sales capacity.

Matt VanVliet

All right. Great, thank you.

Operator

Our next question comes from Jeff Houston with Northland Securities.

Jeff Houston

Hey, guys, thanks for taking my questions. Jennifer I guess, I’ll start off with you, looking at the guidance for 2016, just curious about how much of that is reliant on new business, like in this business that you need to land in 2016? And just kind of how you think about that as you build out the guidance for 2016?

Jennifer Kaelin

Sure. Well, we have a very visible model as we’ve talked about in the past. And our metrics really haven’t changed much over the last couple years in terms of the percentage of our business that we expect at the beginning of the fiscal year coming from revenue under contract, revenue coming from assumed renewals and revenue coming from new business. So those metrics really have not changed much over the last several years. So about 80% of our expected revenue for any given fiscal year is already under contract and the other 20%, it is split between renewals and new business.

Jeff Houston

Great. And then, Steve just curious, how you’re thinking about your use of cash now, I think, Jennifer mentioned you’ve about a $143 million of cash, are you likely to get back into the M&A scene and if so, which areas are you most interested in as you look to build out your product portfolio?

Stephen Wiehe

So, it’s a great question. We continue to see a lot of opportunities to expand the product portfolio through M&A. There is not any one particular area that we’re focusing on. We’re looking across the board. Historically, what – we will tell you last year, we thought the prices of the thing – of the assets that available were illogically high. And so, until that changes we’ll probably continue to look at it, but not too many things. But we see a lot of opportunity and it’s something that we’re focusing on. But there is not one particular area that we’re laser focused on more than another.

Jeff Houston

Got it. All right, thank you.

Operator

[Operator Instructions] Our next question comes from Jeff Van Rhee with Craig-Hallum.

Jeff Van Rhee

Hey, great, thank you. Just a few questions. I guess, I know in the past from time to time you’ve given the splits by end market, I’m wondering if you could just update us as a percent of revenues how you finished up in 2015?

Jennifer Kaelin

So from a percentage of revenue perspective, it’s pretty consistent with where we have been before. It’s just under 50% for higher ed, just over 35% for commercial with the remaining split probably two-thirds public sector, one-third healthcare.

Jeff Van Rhee

Okay, great. And just refresh me, how much of the quarter, in a given quarter is not recurring. You gave the ARR and a number of those metrics, but I’m just, I guess I’m thinking out loud, how much – what percent of that in any given quarter is not recurring?

Jennifer Kaelin

So our recurring is the vast majority of our revenue, but typically we have about 15% of our revenue with the services.

Jeff Van Rhee

Okay. And, I guess along those lines as it relates to services and time and then with implementations, can you just update us on the time and cost efforts to improve implementation times? Just any quantification there in terms of results of some of your efforts?

Jennifer Kaelin

So, just some examples so that I can share with you that we’ve talked about before in terms of the rewritten products where we’ve seen a large improvement. We’ve cut implementation times down by two-third of what they were for several of the products. So, the rewritten products having that cohesive platform, is really enabled us to streamline our processes and really gain that customer to their return on investment much quicker than what we were able to do with the individual point solutions.

Stephen Wiehe

To put it in the context, we talked about a number of customers in our Q3 call that had signed a number of them have gone live or will be going live in the next couple of weeks. And so, historically some of our projects would run six months to nine months on the old platform, under the new platform they are running a quarter or less than a quarter.

Jeff Van Rhee

Okay. And the costs, I mean, I assume that’s proportionate on their side due to the reduction and implementation time or just overall cost thoughts?

Jennifer Kaelin

So, in terms of, cost of our labor or cost of their labor, I’m sorry, I’m not sure I understand your question.

Jeff Van Rhee

Well, both, I mean, I’m just wondering if there are any other components to implementation, you’ve got your labor side that you are billing for, any resources that might – they might have had to historically put towards getting an implementation live versus what they might have to put towards it now?

Jennifer Kaelin

Yes, so it’s primarily on our side where it’s taking a lot less time, but therefore since it’s a much more streamlined process, it’s requiring less effort on their side as well. So, they’re able to get their return on investment a lot quicker.

Jeff Van Rhee

Okay. Great, thank you.

Operator

Our next question is from Brendan Barnicle with Pacific Crest Securities.

Brendan Barnicle

Thanks so much, guys. Jennifer, no good deed goes on current. So, I appreciate this, new information, these new metrics that you are giving us. Can you quantify any of them for us? What is 1% of churn will look like in terms of revenue or what is like a 1% move in ARR look like as we think about how to model this as they improve?

Jennifer Kaelin

That’s a great question. Coming at it from a different direction, what I can tell you is the way to think about ARR is, ARR would be our growth, our revenue growth in recurring revenue, absent new booking, absent any churn. So, it’s everything else being equal, recurring revenue would grow 6% in 2016 without any impact in new business and without being deflated by any customers terminating. So, that’s kind of the way, that’s the reason why we are presenting ARR because it gives you a visibility and some transparency into what the revenue growth should look like without those factors factored in. And obviously we would expect additional business would drive ARR up, and churns not going to be zero. So, that churn will have a slight drag on that ARR growth.

Brendan Barnicle

Okay. I think, again, back into it from there, a little bit more. And then, Steve you mentioned some of the industry analyst commentary on your positioning. I’m wondering if that’s having any impact competitively in whether – particularly on the commercial side, you saw any changes in your competitive positioning, particularly with the upgrade?

Stephen Wiehe

I think it clearly has helped us from a competitive point of view, it is interesting there. One of the large up sale deals in the commercial market was a large, very, very large multinational that had one of our products banned, after using that product decided to replace a preexisting provider with our technology. And I think really what drove that purchase was two factors. One is, they saw the new product. They used the products and had good results with it. But they saw the benefit of the integrated platform that we were offering. And therefore they were willing to make an investment to take out the older – the preexisting technology.

So we really see the rewrite as differentiating our product. I think, it is helped us a lot in quite a number of sales opportunities. We’ve also seen in terms of price as Jennifer mentioned in the remarks. ASPs continue to go up for us. And I think that’s a fact – that’s demonstrated by the fact people are recognizing the value of the platform. And therefore, we’re able to able to get a higher price.

Brendan Barnicle

Great. Thanks guys.

Stephen Wiehe

Sure.

Operator

Our last question comes from Peter Lowry with JMP Securities.

Peter Lowry

Hi, great, thanks. Can you talk about how widespread you see the use of Dell Boomi in your market and what that partnership does for you?

Stephen Wiehe

So, we historically have used web messages and other technologies to integrate with our platform. Dell Boomi is just another technology that a lot of companies do use. And so, therefore, we’ve made the investment to integrate into Dell. It’s early days for us, so yes, it’s hard to say that there’s – it’s a heavily used product. We expect that that will pick up this year and going forward.

And the thing, the nice thing about Dell Boomi versus some of the other technologies is, it is much more self service. And so, it will allow our customers that if they don’t want to pay us to do the work they can do it themselves. And so, we think the Dell Boomi partnership is, is an important piece for us. And we think it will help along with everything else, a needle for us in 2016.

Peter Lowry

Great. Thank you.

Stephen Wiehe

Yes.

Operator

This concludes our question-and-answer session. And I would now like to turn the floor back over to Mr. Andelman for closing comments.

Jamie Andelman

Thank you. We posted our fourth consecutive quarter of accelerating year-over-year revenue growth rates, while generating high profitability and cash flow. As our guidance indicates we expect to improve revenue, adjusted EBITDA margins, and free cash flow in 2016. Thank you and have a great night.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.

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