甲骨文 (ORCL) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Responsys third quarter 2013 earnings call conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the call over to Ms. Carla Cooper, Director of Planning and Analysis. Ms. Cooper, you may begin.

Thank you for joining us today to discuss Responsys' results for the third quarter ended September 30, 2013. Participating in today's call will be Dan Springer, our Chairman and Chief Executive Officer, and Chris Paul, Chief Financial Officer.

The primary purpose of today's call is to discuss our third quarter performance. Before we get started I want to remind you that 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 10Q filed with the SEC, as well as the factors identified in today's press release.

During the course of this call, we will also 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.

Now I'd like to turn the call over to Dan.

Thanks, Carla, and good afternoon to everyone joining the call. I'll start with comments on our results and walk you through some important growth drivers and then I'll turn it over to Chris for a review of our financial results and fourth quarter guidance.

We had a very strong third quarter and delivered another quarter of 25% plus year-over-year revenue growth. Third quarter revenue was $51.7 million, an increase of 27% versus the third quarter of 2012 and well ahead of our guidance of $47 million to $48.5 million. The non-GAAP earnings per share was $0.03, ahead of our guidance of $0.02.

We continue to drive strong results with our existing customers as our innovative approach to orchestrated relationship marketing allowed us to build incremental business with them. At the same time, we continued to sign new customers and bring them onto our platform. This quarter we expanded our customer base by 19 to 451 customers.

As we discussed previously, we increased our investments in sales and marketing to the high end of our long-term target of 25% to 30% of revenue on an annual basis and our Q3 results are indicative of the success of this strategy.

Based upon our positive momentum in the third quarter, we are raising our full-year 2013 revenue guidance to $201 million to $203 million, which means that our Q4 guidance is increasing to $51.5 million to $53.5 million.

Now I'd like to walk you through what we see as the ongoing growth drivers that are allowing us to deepen relationships with our existing customers and build relationships with new ones.

First, we have remained at the forefront of the marketing technology industry by anticipating the future needs of our markets. In other words, we understand the shift that is happening in the industry, that marketers are continuing to move away from an old campaign era mindset and instead are thinking about marketing as consumers do, as a series of related interactions that, when added together, make up the customer experience.

We are championing this approach which we call Marketing Orchestration. Our in-depth and informed understanding of this shift is exactly why companies are turning to Responsys to help them successfully orchestrate cross-channel marketing programs so that they can create a dialogue with individual customers across all of the widely-used digital channels; e-mail, mobile, social, display and the web.

We have a proven track record of enabling our customers to drive higher revenue, realize a better rate of return for their digital marketing dollars, build greater customer satisfaction and create more efficient operations.

A great example of a customer doing this in the third quarter is Ascena Retail Group, the owner of many great brands, including Lane Bryant and Catherine's. By taking an orchestrated approach to marketing with Responsys, Ascena has increased its unique open rate by 70%.

One of their best programs is designed to recapture shoppers who browse the website but don't make a purchase at that time. With the Interact Marketing Cloud, Ascena is now automatically delivering a follow-up message to every individual which highlights the specific products they browsed, as well as additional recommended products. This tailored experience has produced a staggering 600% increase in revenue per e-mail sent. These results demonstrate the strong ROI that Ascena is achieving with the Interact Marketing Cloud.

In addition, the automation within the platform has enabled the company to drive these results, while at the same time reducing the number of hours its marketing organization spends to produce and launch their campaign by 22%. These differentiated results demonstrate the power of the Responsys Marketing Orchestration platform.

Turning to new customers, we've had some noteworthy wins in Asia-Pacific this quarter where we signed Australian events website Ticketek, which facilitates ticket sales at more than 13,000 events a year, and national utility Energy Australia, which services over 2.7 million customers. In addition, Australian retailers General Pants and Woolworth have signed on to work with Responsys as well.

Finally, we also signed two noteworthy brands in Southeast Asia, [Tra Bong], based in India, and Zalora, a Singapore-based online retailer for shoes and fashion.

Our continued growth internationally is supported by expanded services, including localized version of our Interact Marketing Cloud for the German and Japanese markets. Providing customers with access to our platform in their native languages shows our commitment to international markets and should further support our plans to grow abroad aggressively.

We also had notable wins in the US and in Europe in the quarter. This included fashion retailer Charlotte Russe and [Nip Tea] and travel provider CheapCaribbean.com. In the UK we signed online retailer Dunelm Soft Furnishings and casual apparel company Crew Clothing. These customers all have one thing in comment; they've chosen Responsys for our innovation and our pioneering role in digital marketing orchestration.

While our technology for delivering individual journeys at massive scale originally launched almost five years ago, we continue to deliver innovations that allow our customers to refine and personalize the marketing dialogue at scale.

This quarter we delivered several new enhancements to help marketers meet the needs of the best brands in the world. One of these innovations builds capabilities on the back of Twitter's recently announced Twitter Lead Generation Card. It's a technology that allows a Twitter user to respond to a marketing offer delivered through a tweet.

Through our Interact Marketing Cloud marketers can now use this social interaction as a trigger to kick-start an entire stream of communication that spans e-mail, mobile and display channels and it responds to each individual consumer's behavior over time. With this new technology we allow marketers to take what was once a siloed social message and transform it into a complete cross-channel customer journey, increasing both the reach and the relevance of these messages.

Our differentiated mobile offering continues to drive excitement with new and existing customer alike. This quarter we delivered an all-new mobile reporting module to complement our e-mail, display and social reporting capabilities.

Marketers can now measure the success of their SMS interactions across orchestrated marketing journeys and among different mobile carriers. These analytics not only provide insight into service issues that might arise with mobile messages, but also give marketers a clearer view into how mobile messages are driving increased engagement and additional revenue for the brand.

So, in summary, we are very pleased with our Q3 results and are executing a strategy that should allow us to build upon the success we have seen so far in 2013. We have achieved over 25% revenue growth through each of the first three quarters of 2013 by continuing to innovate and deliver the leading platform that provides true marketing orchestration. We have a high-growth business and we'll continue to create and develop new and innovative approaches that marketers need to push their businesses to new heights.

Finally, we are seeing very strong results from our increase in sales and marketing headcount. Based upon these trends, we are very enthusiastic about our future and see sustainable growth opportunities for Responsys as our Interact Marketing Cloud continues to set the global standard for orchestrated marketing campaigns.

Before I conclude, I'm sure that most of you saw that Chris has announced his intent to resign as our CFO. He plans to stay until a successor is found and we've just commenced the search to do just that. I would like to personally thank Chris for his service to Responsys these past seven years, including preparing for and then taking the Company through the IPO. I'm confident that our finance organization is incredibly well positioned to support continued execution of our growth plan and I appreciate Chris' willingness to stay on until an appropriate successor is found and to ensure a smooth transition.

So, let me now turn the call over to him for a discussion of the numbers. Chris?

Thank you, Dan.

Responsys delivered third quarter revenues of $51.7 million, up 27% from $40.5 million in the third quarter of 2012. Non-GAAP earnings per share were $0.03. We are pleased with our results in Q3 with both revenue and earnings ahead of our guidance.

Subscription revenue of $35.1 million was up 24% as compared to $28.5 million in the third quarter of 2012. Our committed subscription revenue was $27.5 million. Our uncommitted subscription revenue, or overage, was $7.6 million or 22% of total subscription revenue. Our subscription revenue was ahead of our expectations as customers continued to drive strong usage of our platform.

Professional services revenue was $16.6 million, up 37% as compared to the $12.1 million in the third quarter of 2012. Services revenue benefited from several near full-service customers who utilize our service organization to deliver their digital marketing programs. Consistent with the trends that we've been seeing since our IPO in early 2011, the subscription [dollar] retention rate was more than 100%. Our (inaudible) customer counts of 451 was up 19 from last quarter and up 52 from the 2012 third quarter count of 399.

Please note that the following commentary refers to non-GAAP expenses and income measures that exclude amortization of stock compensation and amortization of intangibles.

Subscription gross margin was 71% compared to 72% a year ago and professional services gross margin was 9% versus 10% a year ago.

In the third quarter R&D was 9% of revenue, flat with a year ago and G&A was 11% of revenue versus 9% a year ago.

In line with our strategy to invest in the tremendous opportunity in digital marketing, sales and marketing expense in the quarter was 27% of revenue versus 24% a year ago. This level of spending in the quarter is in line with our target spending in a range of 25% to 30%.

Non-GAAP operating income for the quarter was $2.4 million compared to $4.4 million a year ago.

Non-GAAP net income for the quarter -- third quarter of 2013 was $1.7 million and non-GAAP earnings per share was $0.03 per share compared to $0.06 in the third quarter of 2012. Non-GAAP net income and earnings per share were lower this quarter compared to the quarter a year ago due primarily to our continued operating investments, notably in sales and marketing.

As we noted last year, we increased our planned spend in sales and marketing in the second half of 2013, including the addition of (inaudible). This resulted in 40% growth in sales and marketing spend year over year. As evidenced by recent revenue results and the confidence we have to capitalize on the opportunity in cross-channel digital marketing, we continue to believe that this is the right approach.

Operating cash flow was $4.7 million in Q3, while free cash flow, which we define as cash flow from operations less the purchase of property and equipment, was $1.4 million. Cash and equivalents at the end of the quarter were approximately $108 million.

Let's now turn to guidance. Based on the strong Q3 performance, we are guiding to revenue in the range of $51.5 million to $53.5 million for the fourth quarter of 2013, and non-GAAP earnings per share of $0.04. This reflects the traction we are seeing with our existing clients, as well as the contribution from new customers.

We project our cash flow from operations to be approximately $4 million for the quarter and our CapEx to be in the $4 million to $5 million range. The CapEx includes approximately $3 million for a planned deployment of a high-availability data center that will offer an industry leading redundant environment for our clients.

In summary, we are pleased with our Q3 performance and (inaudible) over 25% growth in the first 9 months of 2013. We are reaping the rewards of investments we have made and will continue to capture the tremendous opportunities in digital marketing.

Before we begin with the Q&A, I'd like to thank Dan and the Board for the terrific opportunity that Responsys has provided me in my career. I'm extremely proud of the success we have achieved at Responsys and the role that I've been fortunate enough to play.

With the depth of the Responsys team and tremendous market opportunity, I'm optimistic about the prospects for the Company and will remain actively engaged as Chief Financial Officer until a successor is in place. I look forward to meeting with many of you on the road in the coming months.

With that, we are now ready for questions. Operator, can you please open the line?

Yes, I can. Thank you. (Operator Instructions). Brendan Barnicle.

Thanks so much. And Chris, sorry to hear you go. I wish you well and I'm sure we'll be working together for quite a while as you guys transition.

Dan, I was wondering about industry consolidation, whether you saw any benefit at all from that during the quarter or, also, if you saw any of -- some of the channel partner relationships change or benefit at all from some of the consolidation that's been going on?

Yes, Brendan. I think we've seen two things continue, but not dramatic changes from what we described last quarter. We are seeing the phenomenon around the partnership side, where more and more large companies, whether those are software companies or those are service providers, SI's, that are reaching out to responses and saying, hey, we can see there's a void in the marketplace. We'd like to see you guys play a bigger role from a partnership standpoint.

As we talked about before, those things have a fairly long lead time, I think, before they're revenue producing. So, I think they're likely to be booking producing in early 2014 and probably revenue producing later in 2014. But we're pleased and we're spending a lot of time. We're actually staffing up our capability for those sort of business development interactions, which is going very well.

In terms of industry consolidation, and I think it's something we've seen going on for years, obviously the specific example happened with sort of ExactTarget. We haven't seen a dramatic change. We've seen a few examples where, particularly for B2C-oriented companies, they've brought up the issue that they're pausing a little bit and thinking about those guys as a partner, given what appears to be more of a drive towards a B2B-centric move.

And as you know, Brendan, we don't really think about the world so much as B2C versus B2B. We have customers in both segments. We just think of them as different vertical strategies. But, we see some help coming to us on the B2C side with those kinds of moves.

And what about -- has that translated or had any impact on pricing? A year ago we went through sort of some renegotiation on pricing. Can you give us an update on where that is? And is this -- these industry -- have these industry dynamics impacted that at all?

Yes. I'll let Chris talk a little bit about our experience with pricing. And the top line answer is no significant changes.

From the standpoint of the industry potential impact, I think being the independent leader is a good place to be. We like being in that position as we have in the past. And I think that the fact that there are always fewer attractive options for people probably does have a slight positive impact. But in terms of sitting here at the end of Q3, we don't have any noticeable phenomena that I can describe that pricing is getting dramatically easier due to consolidation in the space.

Chris, you want to just give a little overview on how we think about pricing overall?

Yes. If you look at the data, by now we're well through the pricing of renewals that we've mentioned on previous calls. So, well over the 75% range. And so anything new coming up on the pricing side would not have a significant impact on the business.

So actually, we feel really good about (inaudible) expectations we really had before and where we ended up for the year is actually in a very good position. And as I mentioned, on the new renewals that I'm seeing, I'm not seeing (inaudible) than what we've seen obviously earlier in the part of the year. And directionally, there's nothing that would indicate anything different.

Great. And then, Chris, I just had two housekeeping ones. I missed them. What was the overage revenue again? And then did you say that CapEx would be between $4 million and $4.5 million? And so I think you talked about around $4 million in operating cash flow, so we should be flat to negative on free cash flow for the fourth quarter. Did I get that right?

Yes. The overage was $7.6 million in the quarter, about 22% of total subscription revenue. Very good, solid performance for us. Feel good about that.

On the CapEx side we are investing in a further data center for high redundancy and availability and so expect CapEx of about $4.5 million, in the $4 million range for the quarter. With that, the free cash approximately neutral.

Michael Nemeroff, Credit Suisse.

Thanks for taking my questions and congratulations on another really nice quarter. Just --.

Thanks, Mike.

One -- thanks. One first for Chris. And again, I'll echo my comment. Sorry to see you go. On the guidance for Q4, it seems like the last couple of quarters you guys have handily beat the top-line guidance. Is there anything different about this quarter thus far that would change the method or thinking behind how the guidance is provided, just for Q4 guidance?

Well, going into Q4, [if you laid it] up on prior-year Q4, it's obviously the big retail season so we tend to have quite a bit of our revenue driven by overage, which has been very good in the last few years. We've seen no trends again which show any indication for Q4 this year, but obviously it's still early in the quarter and we're finding our numbers internally as we go along. But based on (inaudible) and what we have now, we think this is a solid base for us to work from.

Great. And then for Dan, just on the sales ramp. Obviously it's been successful and really starting to see the result of those efforts over the last couple of quarters. Can you give us a sense for how you're going to increase the number of sales people, or -- and if you can give us some metrics around that, that would be helpful, into 2014, or do you have enough for -- to hit your 2014 goals?

And then just separately, how should we -- I know you guys don't want to give 2014 guidance, but should we be thinking that the performance over the last couple of quarters, that can continue apace into 2014?

Sure. So starting off on the reps, I mean, so the answer is clearly we think there's going to be more hiring of sales reps and more spending on sales and marketing, consistent with what we've done in the last several quarters. To your point, Michael, we feel that there's a lot of opportunity in the space and we're getting more bullish on sort of the market we're going after getting bigger and bigger each quarter that goes by.

So, yes, we have the sales people in place now that would drive probably the bulk of the bookings we need in 2014 revenue. Because as you know, that the sign up period, we've talked about this before, it takes a few months to get a rep productive, takes a few months to get them working on deals. And then we've got our deal cycle and then turning that into revenue. The reps that are going to drive 2014 revenue are in place pretty much today. But in terms of thinking about the 2014 growth, leading into 2015 and beyond, we want to aggressively be adding.

In terms of where those people will go, more will go into the general business segment, because We've talked about the fact that that's still a smaller segment for us than enterprise, which is more of our business is today. But we will also be adding enterprise. A lot will also be going internationally, because we told you before we see a lot of greenfield opportunity and there's marketplaces where we don't have good penetration and we'll be putting additional reps in those places as well.

And then to your question around 2014, you're right, we're not doing guidance at this point in time. I think what we've said in the past is we want to make sure we're making the investment to deliver an over 20% growth in a sustainable long-term way. And that's not change at all and we feel very excited that we'll be able to do that in 2014 and 2015 and beyond.

Great. Thanks, Dan. And then just one last one on the non-e-mail product side, if you could just maybe give us some qualitative update on how that's progressing.

Yes. So, two things that I'd point out. One would be on display. And there's two things that are really important about display. It's continued to be a really important differentiator. And there's a lot of people who buy into our fantastic story around what marketing orchestration's going to be. And we don't see anyone else in the marketplace that has this kind of relationship-based display so we continue to be excited and see real traction there.

The other piece that's been probably the most exciting from the revenue generation standpoint is mobile. I think you're going to see us talking more and more about mobile as we go into 2014 and beyond. And that'll be the area where I think we'll start to see the biggest impact on our revenue growth from the emerging channels will be on the mobile side.

Thanks very much. Congratulations, guys.

Lauren Slabaugh, Stephens Incorporated.

Hi, guys. Thanks for taking my questions. And to echo everyone else, Chris, sad to see you go. Definitely enjoyed working with you.

Thank you. (Inaudible.)

Thinking about growth for next year, could you -- I know we've touched a little bit on display and on mobile, but could you help us sort of break down the drivers in terms -- and sort of almost force rank them in terms of more e-mail volumes with existing customers, new customers, display, mobile, sales and marketing; sort of how you think about those drivers in order of importance.

Yes. I mean, it's interesting to think about it. And Chris, chime in, too. I'll give you my thoughts. It's interesting to think about the drivers because, as you said, you can cut it a bunch of different ways.

If I think about the initiatives we're driving and I look at 2014 and 2015, I think I'd probably prioritize them something along this line. Growing our installed base is a huge opportunity. We have well over 100% dollar retention rate which we talk about all the time. That's such an important part of our overall business. And that will probably be the continued most important piece that we have.

Second to that would be adding in new customers. And a lot of that goes to the sales and marketing spend we just described, which we think is going to create that fantastic opportunity.

Keep in mind, in any given period, Lauren, so the spending we do in 2014 on new sales will not have a significant impact relative to the expenditure on 2014 revenue, but it'll be a huge driver for the 2015. I really think about it almost as a significant lag of sort of 6 to 9 months. But in general, if you're thinking about where our big drivers are going to be, that would be the second biggest driver.

And then in the emerging channels piece, which is where I would have the third piece, and that's where I would put mobile first, significantly ahead of the other channels, followed by display and social.

Chris, is that similar to you or--?

Yes, I think very similar. The key thing for me is one of the primary reasons people come to us is because of all those channels, alright? So, the adoption (inaudible) may not be at the level of e-mail, but people are certainly planning on it and we're seeing a lot of early day's programs, but obviously the revenue takes a while to ramp on those. But certainly, people are coming for the full cross-channel orchestration, which is just great for us to see.

Thanks. That's helpful. And then just thinking on -- we've heard a lot of people come out and talk about competitors getting into the enterprise space and everyone wants to compete there. We -- let me hear your take on just what that looks like, how big of a space it is, if it matters if the competitors try to come in. Just love to hear your thoughts on that.

Well, I mean we feel very strongly we are the clear enterprise leader in our programs buying space. And importantly, I think we also look at the phenomenon that we're changing the space, right? So a lot of people have tried to define it as e-mail marketing or cross-channel. We think we're trying to really change the definition. And for the enterprise companies, that's really where we see the biggest opportunity, to change them into this marketing orchestration piece. So, that's probably how I'd think about that.

Traditionally we've been much stronger in the B2C space, although B2B has been an important piece of our business. As we talked about in the last quarter, we're seeing more opportunities in the B2B space and we're looking at that as another growth area for us, although it'll always be much smaller than the B2C space for us because we have less focus there. It'll be just like when we moved into the midmarket where it became another big growth opportunity for us and we're excited about that as well.

Great. Well, that's it for me. Congrats on a great quarter.

Thank you.

(Operator Instructions). Jennifer Lowe, Morgan Stanley.

Hey, guys, thanks. It's actually Stan Zlotsky sitting in for Jen.

A very quick question for you. As you look at the business, how did the general business do versus the enterprise and have you've seen anything specific going on between those two?

Yes. So the general business is a faster growing segment for us. Again, as we've talked about in the past, Stan, it's because it is coming from a very small base and enterprise had been our traditional strength.

But, one of the things we're seeing increasingly is that what made us successful in serving the enterprises is that we could do this sort of marketing orchestration type work at scale. And I think we're seeing now that more and more of these general business companies are realizing that the number of messages they might send is smaller, but the number of transactions that they have and the number of sort of different pieces of data they want to have in the system is much larger. So, they want someone like Responsys, which is really able to do this at scale.

And we're going to see this built on the B2C and the B2B side. As those businesses get bigger we're going to have that differentiation. So, there'll be more growth coming from segments like B2B and spaces like general business just because they come from a smaller base, but they're going to increasingly want to leverage the capabilities we've proven out for the enterprise at scale.

Okay. And as we think about customer adds, especially as the general business ramps, are you guys still on pace for the 50 customer adds target?

Yes.

Okay. Alright. And a last one. As we think about going into next year and sales hiring, the pace of it, do you still expect it to be similar to this year or maybe accelerated and just continued growth into 2015?

Yes. I think if you look at the sales and marketing spending, if you think to the concept, we talked about we'd move to the high end of that 25% to 30% on an annual basis. There's some quarterly fluctuation because of our big marketing event. But if you think about that we've moved up to the high end of that 30%. Since we think our revenue's going to be significantly larger next year than this year, if we're keeping at that same rate we're obviously accelerating that expenditure and that's our expectation for the future. We're going to continue to accelerate that spending in sales and marketing.

Okay. And a last one. On overages they were slightly higher than what we had expected. Is there anything else going on there that we need to pay attention to?

Strong customer research platform. I think that's worth paying attention to.

Yes. Interesting about the overage patterns that we've talked about a lot is this phenomenon -- and traditionally we had a very big Q4 whereas Q1, Q2 and Q3 were very similar. The last couple years we've had higher overage in Q1. And Chris has taken you guys through in detail the phenomenon that we had a few contracts with large customers that had these annual overages that were triggering out in Q1.

As we mentioned on the Q1 call and the Q2 call as well, we think we've worked through that and we're now, going forward, going to have more consistent overage Q1, Q2 and Q3 and then the holiday impact that Chris described earlier will still have an impact with a little more percent of our revenue from overage in Q4. And that's our view going forward.

Thank you. And I'm not showing any further questions at this time.

Then if there are no further questions, we will say goodbye to you for this quarter and we'll be back to you in the February time frame with our Q4 results. Thanks for tuning in.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.