甲骨文 (ORCL) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Responsys First Quarter 2012 Earnings Conference Call. (Operator instructions) I would now like to turn the call over to Carla Cooper. You may begin.

Great, thanks very much. Thanks for joining us today to discuss Responsys' results for the first quarter ended March 31, 2012. Participating in today's call will be Dan Springer, Chairman and Chief Executive Officer, and Chris Paul, Chief Financial Officer. I will cover the Safe Harbor statement and then turn the call over to Dan.

The primary purpose of today's call is to discuss our first quarter performance. Some of our discussion will contain forward-looking statements which may include projected financial results or operating metrics, business strategies, anticipated future products or services, anticipated market demand or opportunities, and other forward-looking topics. These statements are subject to risks, uncertainties and assumptions. Accordingly, actual results could differ materially.

For a listing of the risks that could cause this, please see our most recent Form 10-K filed with the SEC as well as the factors identified in today's press release.

During the course of this call, we will be discussing certain non-GAAP financial results. We direct your attention to our reconciliations between GAAP and non-GAAP measures, which can be found in the Company's earnings release which is posted on the Investor Relations portion of our website. Dan?

Thanks, Carla, and good afternoon to everyone on the call. Before we begin our review of the quarter, I'd like to thank the analysts and marketers who attended our Responsys Interact User Conference last week in San Francisco. We had almost 1,000 attendees for our eighth annual conference, by far our biggest yet. It was great to see so many of you there.

Now, back to the first quarter. I'm going to review our Q1 results, and then run through some of the quarter's highlights. Next, I'll turn the floor over to Chris for a detailed financial review of the quarter, as well as our Q2 and full-year 2012 guidance. Then we'll have some time to take your questions.

It was a great quarter, and a strong start to the new year, and as you can see in our press release, on the strength of Q1 we are raising guidance for revenue and earnings for the full year.

In the first quarter, Responsys generated revenue of $38.1 million, and non-GAAP earnings per share of $0.07. Revenue from overage and professional services were strong in the quarter, and revenue was ahead of our guidance of $35 million to $36 million. EPS was also ahead of our guidance of $0.03 to $0.04. Chris will give you details when he takes you through the numbers, but suffice it to say that I am very pleased with the start to the year.

We also began 2012 with several important announcements. In March, we expanded our presence in an important international market with a minority investment in Pmweb. Pmweb is a leading digital marketing and CRM solutions provider in Brazil. This move will enable Responsys to expand its geographic footprint into Latin America, a region where the use of digital marketing channels is on the rise.

South America is a large and rapidly-growing market and represents a strategic growth opportunity for Responsys. Pmweb has a highly experienced team of marketers and an impressive client list, but more importantly it shares our commitment to customer success and working with the best people and brands in the world.

We had a large Brazilian contingent at the Interact Conference last week, and we look forward to partnering with Pmweb to help leading marketers in Brazil and throughout Latin America increase customer engagement and ROI through smart interactive marketing.

Last week, as I mentioned before, Responsys hosted its eighth annual User Conference, which we call Responsys Interact, for almost 1,000 attendees in San Francisco. The event showcased marketers who are rewriting the rules of marketing through advanced use of cross-channel interactive communications.

We had over 50 sessions featuring expert marketers from leading customer and partner companies including Facebook, Scottrade, Orbitz, Epson, Philosophy, Dollar Thrifty, Quicken Loans, REI, and Schneider Electric. Among the sessions, several keynotes and breakouts stood out for the attendees.

Facebook's Grady Burnett discussed how Facebook is providing the opportunity for brands to better position themselves and engage with customers and prospects on Facebook's community of over 900 million. Marketers around the world are trying to figure out how to most-effectively engage with their customers on Facebook, and having Grady there in person to provide color and guidance was a big highlight.

Scottrade's April Mullen showcased how Scottrade has moved beyond campaigns to multi-step, multi-wave interaction, to drive new leads and new levels of customer engagement and growth.

Ted Wham, VP of Customer Relationship Marketing at Orbitz, showed why and how marketers should rethink the fundamentals of segmentation and automation in an online world.

And the platform behind all of these successes is Responsys Interact, which is enabling marketers to power these next-generation programs. Regarding our powerful platform, here are a couple of capabilities that we highlighted at the conference.

First, Responsys Interact For Display. You've heard us talk about this product, which we launched last fall. Responsys Interact for Display enables marketers to leverage display ads as a part of their cross-channel marketing programs. With this product, marketers utilize the knowledge they have about their customers and prospects that's in their Responsys Interact database, to bid on display ads to be targeted only to these identified customers and prospects.

At Interact, we announced that a number of global companies are utilizing this product. They include Dollar Thrifty Automotive Group, [Loxitane], MetLife Auto and Home, and StubHub. These companies can now leverage the information they already have in Responsys' single integrated data record, to better target their consumers.

Second, we unveiled the Interact Social Data Cloud. The Interact Social Data Cloud brings customer insights gathered from social data overlays, applications and interactions, directly into the Responsys Interact Suite, allowing marketers to leverage social profile and behavioral data to build and execute highly-personalized campaigns.

Marketers can select from a variety of social attributes within the Interact Filter Designer to segment and target consumers based on factors like geography, social sharing history, their birthday, and their product interest or brand affinities.

These attributes can then be combined with rules in Interact Filter Designer to execute highly-relevant marketing campaigns within the Interact platform. Ultimately, the use of the Interact Social Data Cloud enables marketers to execute timely and relevant cross-channel marketing communications and programs based on a deeper understanding of a consumer's interest, needs and behaviors.

As you can tell from this brief summary of our activities, it was a busy start to the year. Let me finish my remarks by focusing where much of this activity culminates -- in signing new brands who want to leverage the powerful platform that Responsys has built to drive interactive marketing.

We are pleased to announce that online home decor retailer Art.com will be using the Interact platform to fuel its interactive marketing activities. So will Charming Shoppes, the company behind Lane Bryant, with over 1800 retail stores in 48 states, as well as hot social gaming company CrowdStar.

Monsoon Commerce, which owns independent book seller Alibris, has also signed on, as has Vente-Privee, the original daily deal site.

We are pleased with the continued migration of great new brands to Responsys. In summary, our financial results and business activities in the first quarter were a very strong start to the year. We are excited about the opportunity for Responsys to drive revenue growth as consumers spend more time in the digital channels. At its core, Responsys enables marketers to engage in dynamic and interactive conversations with consumers in these digital channels to enhance their relationships, create deeper brand loyalty and generate strong financial returns.

Serving this market as it develops should allow us to generate significant growth for years to come.

Before we take your questions, Chris will walk you through a detailed review of our Q1 results and our Q2 and updated 2012 guidance. Chris?

Thank you, Dan. I will begin by reviewing our first quarter results, then discuss our second quarter and updated guidance for 2012. First quarter revenue was $38.1 million, up 26% year-over-year. This was ahead of the $36 million top end of our guidance. Strong revenue from messaging volume above committed levels, as well as solid professional services demand, drove the strong results.

Subscription revenue including overage was $27.2 million, or 71% of total revenue. Overage was $6.9 million, or 25% of total subscription revenue. Professional services revenue was $10.8 million in the first quarter, up 18% year-over-year.

Our average revenue was up sequentially, unusual between our seasonally strong Q4 and typically lighter Q1. Our first quarter includes about $1 million in overage from several customers whose contracts are on an annual cycle with overage billed in the first quarter. We do not expect this revenue to recur in the remainder of the year, and this is reflected in our second quarter and 2012 updated guidance.

Our customer count at March 31, 2012 was 346. This compares to 309 at March 31, 2011, and is flat with December, 2011. This customer count reflects customers that contribute committed subscription revenue above the $3,000 per quarter mark we use to define a customer. As we've told you in the past, some customers come in and out of the count from quarter to quarter based on revenue levels that fluctuate around $3,000 per quarter, and this quarter more than we typically see fell below the threshold.

There is also a lag between completing the sales process and customers contributing to subscription revenue. Of all the wins Dan mentioned earlier, none are included in the customer count.

Our dollar retention was over 100%, consistent with recent quarters. Expansion of the business with existing customers remains a key contributor to our overall growth. The strong overage revenue contributed to the strength of this metric.

As I move to expenses, please note that I will be discussing non-GAAP expenses and income measures that exclude amortization of stock compensation, and amortization of intangibles.

Subscription revenue gross margin was 73%, reflecting high incremental margins from strong overage revenue. Professional services gross margin was 10%. Operating expenses in the quarter were $15.4 million, up by $2.5 million or 19% from the year-ago period. Sales and marketing expense was $8.1 million and the year-over-year growth rate of 11% was impacted by the timing of our annual user conference which occurred in the first quarter of 2011 but is in the second quarter of 2012.

Operating margin in the first quarter of 2012 was 15% compared to 9% in the first quarter of 2011. The increase reflects the higher gross margin of 55% versus 52% a year ago, and also the user conference cost in the first quarter of 2011.

Our cash flow from operations was $5.7 million in Q1 and CapEx was approximately $2 million. Cash, equivalents and short-term investments were $97.5 million at the end of the quarter.

Our pro forma non-GAAP effective tax rate was 38%.

Turning to our updated guidance for 2012, we are raising the top and bottom ends of our annual guidance from a range of $160 million to $163 million, to $163 million to $165 million. For the year, we are raising our non-GAAP net income guidance from a range of $10 million to $11 million, and $0.19 to $0.21 per share, to $11 million to $12 million and $0.21 to $0.23 per share.

For the second quarter, we are introducing revenue guidance of $38.5 million to $39.5 million and non-GAAP net income per share of approximately $0.03. This second quarter earnings per share guidance reflects the cost of our annual user conference.

For the year, our updated revenue guidance represents annual growth of approximately 22% at the top end of the range. We continue to forecast that our sales and marketing expense will grow [near] 20% per year, this year. Incorporated into our guidance is a 40% non-GAAP tax rate, 53.6 million shares outstanding for the year, and 53.5 million shares for Q2.

A quick note on CapEx for Q2, we plan to move into our new space in San Bruno and New York City in the second quarter. Because of this, we will see the bulk of our CapEx for our new space, approximately $3 million, fall into the second quarter.

With that, we will now open the line for questions. Operator?

(Operator Instructions) The first question is from Jennifer Swanson Lowe of Morgan Stanley. Your line is open.

Great, thank you, and great quarter, guys. I guess the first question I wanted to touch on was, I know last quarter there was a lot of discussion around this desire to increase sales capacity by 40% this year, and I was just curious to get an update on where you are in that process, how have you been, how successful have you been finding the right talent to sort of drive that type of sales capacity growth and how do you feel about how that's tracking, versus your expectations?

Thanks, Jen. We feel really good about it. We've had tremendous success, not only in finding new talent that comes into the enterprise space but also in building, as we talked about before, this construct of taking folks that we bring in, in our lead generation team, we call SDRs or Sales Development Reps. Having some of those people move forward to become general business reps, and then over time some of them migrating up to the enterprise.

So, in the past where we may have found it more difficult to just go out and find great new enterprise reps, that can sell into this exciting new opportunity, we're now able to grow some of our own as well and the combination of those two, the outside recruiting and the growing our own, give us good confidence we will continue to meet those goals for the aggressive expansion of the sales capacity, which we think is key to driving the increased growth rates we talked about in the second half of the year versus the first half.

Great, and Chris, I just wanted to drill into the customer count a little bit, and you mentioned in your prepared remarks that there was a larger than usual number that dropped below that $3,000 threshold. Do you have any visibility into why that might have been higher than usual, or anything notable that may have caused that to be a little more significant?

If you look at the nature of the customers that do go in and out, it's the same that we typically see, and it really is the ones that are fluctuating right around that $3,000 mark. It's less big ones going to below $3,000. We typically expect some small amount each quarter-to-quarter. This year we saw over half a dozen, which is more than we typically see, and there are really is not a constant trend quarter-to-quarter other than this is certainly bigger than we normally see. It really is based around that threshold of $3,000.

Great, thank you.

Thank you, our next question is from Laura Letterman of William Blair, your line is open.

Yes, thank you so much for taking my questions. Can you talk a little bit about pricing in the market, and what you're seeing out there? I think it was two, two calls ago you mentioned that the pricing had become a little bit more aggressive, and I was wondering if that's normalized or still what you see? And then I have a few [follow-ups], thank you.

Sure, Laura. From a pricing standpoint, I think we're seeing fairly consistent pricing across the board, after the change you alluded to from a few quarters ago. So, there's no particular change we're seeing across the enterprise or our smaller segment in GB to report on at this time.

Following up on the comment on GB or general business, can you talk a little bit about the success in moving down market and how that piece of the market's different from the enterprise, and maybe a sense of how much of the business that represents today so we can get a sense of how that [move then] down market is going?

Sure. Though, I think the biggest change for us in entering more of the GB category is finding it's less different than we thought it might be. The major difference was in deal size. It turns out there are a lot of customers at that slightly smaller size that want to do enterprise-quality marketing, and those are the people that we're targeted. So, we qualify out mid-size companies that aren't interested if they just want to have a more blast mentality and e-mail only mentality. We don't work with them.

But, for the folks that are those mid-size companies that want to do truly cross-channel marketing, and are committed to working with a leading provider like Responsys, we're excited to serve them and we really don't see a lot of difference between those customers -- again, other than their list size tend to be smaller and their initial purchase levels are smaller.

From a distribution, across, we don't break out sort of a general business segment per se from an enterprise segment, to give you a revenue mix from that standpoint, but I can tell you that we're aggressively hiring into that space as we are in the enterprise side.

I have a question [for me], if you look at the business standing here today versus lets' say two quarters ago, what's different, what's better, what's not as good, just sort of a sense of now versus two quarters ago?

Well, I think there's a lot of small change. You try to think about any significant changes, I don't think there's really anything. I think our business has been consistently growing. We feel like the core strength that has driven our business, which is our leading software and our leading services capability, are pretty much unchanged. From a market standpoint it's the same set of competitors that we're competing with, both additional marketing service providers as well as the new entrants that were mid-market players coming upstream, and from the standpoint of that kind of Responsys approach I don't think that's dramatically changed either in going after the market.

So, we think the market's continuing to grow at an attractive rate, we're continuing to take share, and therefore grow at a more rapid rate, and the only place that I would say there's significant difference is, we are evolving our cross-channel story I think, stronger and stronger every quarter and that's probably the biggest difference that I can see from a few quarters ago.

Thank you so much.

Thank you.

Thank you. The next question is from Brendan Barnicle of Pacific Crest Securities, your line is open.

Thanks, guys. I was looking at deferred revenue which was up sequentially. We don't typically see that early, not last year in the Q1, so I was just wondering what was driving that? And then, given that overage in the deferred revenue, should we expect that it would still continue to bump up in the second quarter sequentially, or might it pull back more like it has seasonally?

You know, Brendan, I've spent time before going over deferred revenue and really, for us, there is no consistent trend in there because we bill primarily quarterly or monthly. The fluctuations really are not reflective of the overall revenue base of the customers, so we'll see these short-term fluctuations. They are sometimes driven by professional services, if someone pays us a pre-paid retainer that you haven't taken in revenue yet.

Otherwise, there's nothing really in that deferred revenue that's reflective of a change in the deferred revenue that would change the revenue direction.

Great, and then Chris, just on you'd mentioned that Insight gets taken this quarter rather than in Q1 like in years past. How much should we be allocating to that incremental expense?

So, you're correct, that conference typically was in Q1. It's about a couple million dollars in Q2.

Okay great, all right, thanks, guys.

Thank you.

Thank you, our next question is from Carter Malloy of Stephens, Inc., your line is open.

Hi guys, it's actually [Croche] on the call for Carter, just got a quick couple questions. First, on professional services, can you give us a kind of a picture of what that revenue profile looks like over the life of the contract? I'm assuming there's a majority when the platform is first launched, but then there's a return to a normalized level, and then what percent of that contract revenue is that?

Sure, so if you think about the professional services, you need to split it into a couple different buckets. If you're thinking about purely the implementation of a new customer, then I think it fits the model you just described, where there's some up-front cost that usually gets done over the couple of months, and we basically take those dollars over those first few months. But, if you look at our total professional services revenue, we do a lot more than just implement customers. We have strategic services, we have ongoing technical support services for people who want to push the envelope a little bit, and the types of integrations and data work that they do.

We also have executional work whether that be creative or campaign, and those revenues tend to move fairly evenly across the life of a customer as do their subscription services.

So, I want to make sure you get a full answer to your question. The reality is professional services, think about them as two core buckets, the ongoing and the setup, and the setup on average, think about that as a three-month period of time. The rest of the professional services, which is by far the majority, tends to move evenly with people's subscription revenue.

And then just one more point on that, it is a curve, spread over the customer base, so remember customers use us in different ways. Some are collaborative, that use us on an as-needed basis, and those may be in the 10% to 20% range. We've got some full-service customers where it's actually a pretty high percentage of their revenue, but [averages] [start] in the 25% to 30% range, and that's been pretty consistent.

Okay great, thanks for the color, and then one more. On the cross channel, how are some of these other channels priced? Are they on a volume basis? And then, when new contracts come on, what are you guys seeing in terms of how many of them are using more than one channel?

So the pricing for the various components are different for each one, so social is a subscription fee that people pay monthly for access to the publishing. Mobile has a component which is an access charge, and then a per-message fee, so it's much more like the e-mail model, where people commit to a certain volume and then can -- can also have overage for that capability.

If you think about the new Interact Display, it has similarly a fixed cost to access the software and then an ongoing per-ad-served fee, so each of them are a little bit different but those are basically the models of how we bill for the revenue for each of the channels.

To your question about the mix, right now from a standpoint of numbers of customers, of new customers coming on, about half of them are looking to take on additional channels beyond e-mail, and Chris did a really nice job at the Analyst Day. Those of you who were there saw how it's different for each customer. Some come on in an e-mail initially only point of view and then add additional channels over time. Some customers come in starting off with a cross-channel orientation already, and then maybe add additional ones, or maybe just grow with the initial channels that they started with.

All right, thanks.

Thank you, the next question is from Patrick Walravens of JMP Securities. Your line is open.

Yes hi, it's [Peter Lowry] for Patrick Walravens. I'm just one quick question on gross margin. It looks like over the last three years, you've exited the year with higher gross margins than you had in Q1. Given the strong gross margin you had in Q1, do you see that, any reason that wouldn't occur?

Yes, typically Q4 is our strong seasonal quarter, largely because of the retailers that drive high volumes during that quarter, so we get incremental lift from overage that goes directly to higher gross margin. Q1 this year was a little unusual for us, where actually the overage did not go down. Typically sequentially for us, there's a down quarter Q4 to Q1, so that was really great for us to see, part of it is the way customers' contracts work. Because of that you also see a higher gross margin, and to some extent the gross margin was benefited in Q1 versus prior years also.

So, apart -- you'll always see a higher margin in Q4 typically than Q3, but the good news is we didn't see that typical dropoff in Q1 that we see historically.

Okay great, and then just one follow-up question. It looks like ex overage, ex overage subscription base revenue was relatively flat versus Q4, is that something that was expected or was just a function of how that typical Q4 overage happened in Q1 this year, or anything you can comment on there?

Could you rephrase that question? I think we may have a misunderstanding on something.

Sure, so base subscription revenue, subscription revenue less overage, looks like it was fairly flat from Q4 to Q1. Was that expected, or was that just a function of the overage revenue that happened in Q1 this year, which typically may have happened in Q4?

Yes, you're talking about the sequential?

Yes, the sequential base subscription.

Yes, so a lot of factors go into subscription revenue and it depends on how people go in and out of the tiers. Also, typically from Q4 to Q1, [clearly] is a busy time of the year for customers, and you get very few new customers being impacted. That to some extent also drove the flat customer count number. Remember, all the new customer signings in Q4, basically don't contribute revenue until Q2, approximately. So, as we typically would see that lag, in Q4 to Q1.

Yes, and if you look back to the previous year, 2010 messaging subscription from Q4 to Q1 2011, it's the same thing, virtually flat. Down a couple hundred thousand dollars. Consistent with what we would see in prior years.

Okay great, that's it here, thanks.

So also, the difference though is this year, if you look at the overage prior year to this year, you see it actually did not drop compared to how it normally does in prior years.

Got it, thanks.

Thank you. (Operator instructions) We have a follow-up question from Pat Walravens of JMP Securities, your line is open.

Hi guys, Pat, for Pat. (laughter) Sorry about that, but can we step back for a second and just talk about -- not what you're guiding to for this year or next year, but just longer-term, how should we think about what kind of growth you can achieve, and how are you thinking about the tradeoff between growth and operating margin expansions?

Yes, absolutely. So, I think it's a consistent story coming out of the end of last year, going into 2012, and beyond. We think we should be making significant investments both in our product and very specifically in our sales and marketing capability, to grow higher growth rates. If you take a look at the growth rate that we have now projected for the first half of 2012, versus the first half of 2011, if you use the high end of our Q2 guidance it's about 21%. If you look at the second half of 2012, over the second half of 2011, it's just about 24%, and that's the commitment we made earlier with the investment we're making in sales and marketing in particular, to increase that growth rate.

Our aspiration is to continue spending and building even more sales and marketing capability, as our answer to Jen's question up front, and Pat, our belief is that's going to continue to yield higher growth rate potential for us.

Do you expect operating margins to expand? Go down? Be flat?

We think our long term margins will go up. We've shared the historically -- we've shared with you guys the view we have of our long-term opportunity, and as you can see, we're pretty far along the route to that long-term opportunity. We do see that those margins will continue to expand in order to achieve that long-term model.

Pat, as I walked through the model at the Analyst Day, the key leverage for us as we mentioned then is really on the gross margin side. On the operating side, we are investing in sales and marketing this year, taking to the high end of the range, and we're doing that because we think we'll get longer-term returns. So, longer-term we don't expect to go outside of the model. So, if we keep the OpEx within the model, and try and improve margins on the gross margin side, that obviously gets us improved operating margins, gradually getting to the target model over the next couple of years.

Great, thank you.

Thank you. Our next question is from Laura Lederman of William Blair, your line is open.

Yes, I thought I would follow in Pat-Pat's footsteps, (laughter) second round of questions. Following up on your point of 22% [personal] growth in the first half and 24% in the second, I was kind of -- or 21% in the first half and 24% in the second, of how confident you are in that acceleration? Is that already from customers booked, how much of that comes from overage? In other words, sort of the thought behind the numbers that give you confidence in the acceleration?

Yes, well the core drivers for that are the two components we've always talked about. That's the dollar retention rate from our existing customers, and then our ability to attract and bring on and then retain great new customers. As we said in the past, notionally we put about 50% weighting on each of those.

Our visibility right now I think is quite strong, for the -- that's the reason we're taking up that guidance, is quite strong for that increased growth rate in 2012. I think our view is that this is a very strong market opportunity ahead of us and we are very well-positioned to continue to expand into that market opportunity. So, there's a great deal of confidence in our team, Laura, that we're going to achieve that level and obviously our aspiration is to surprise you all in the future and do better, but we have a high degree of confidence in that success.

Thank you very much.

(Operator instructions) I'm not showing any further questions at this time.

Great. Thank you, everybody, for tuning in today to our First Quarter Conference Call. We will be back to you next quarter.

Ladies and gentlemen, this concludes today's program. You may now disconnect, good day.