Demandware : Announces Record Fourth Quarter and Year End 2014 Financial Results

Demandware^®, Inc. (NYSE: DWRE), the industry’s leading provider of enterprise cloud commerce solutions, today announced record financial results for its fourth quarter and year ended December 31, 2014.

• Record full year subscription revenue of $145.9 million, a 52% increase year over year
• Live customers reached 267 at year end, an increase of 31% from 204 at year end 2013
• Live sites reached 1,143 at year end, an increase of 39% from 820 at year end 2013
• Average revenue per customer expanded to $578,000 in 2014 up from $515,000 in 2013
• 22 customers generated more than $100 million in gross merchandise value over the Demandware platform in 2014, up from 17 customers in 2013
• Subscription dollar retention rate exceeded 100% in 2014 and customer churn was less than 5%
• Contract backlog (consisting of unbilled committed minimum subscription plus deferred revenue) reached $461.7 million as of December 31, 2014, an increase of 37% over $336.5 million as of December 31, 2013. Backlog increased 42% on a constant currency basis⁽¹⁾
• Early in 2015, Demandware closed the acquisition of Tomax, an enterprise cloud software company that provides an integrated solution for retail point-of-sale (POS) and store operations

“In 2014, we posted another year of record results,” stated Tom Ebling, Chief Executive Officer of Demandware. “The innovation and agility of our cloud platform empowered clients to grow significantly faster than ecommerce industry benchmarks, which enabled us to again outperform expectations. We entered 2014 with three major strategic imperatives – further penetrate large enterprise accounts, expand internationally, and enhance our omni-channel capabilities. We executed against each initiative. During the year, we signed enterprise scale customers including Charles Tyrwhitt, Panasonic, GoPro and Jack Willis and large clients such as 1-800 CONTACTS, Payless ShoeSource, Jack Wolfskin, and Wolverine Worldwide went live on the platform. We expanded deeper into the Asia Pacific region, bolstered our European operations and enriched our omni-channel capabilities with distributed order management and the Digital Store solution. The execution of our strategy in 2014 and our acquisition of Tomax in early 2015, puts Demandware in a strong position to drive the transformational change in retail from ecommerce to in-store operations.”

Subscription revenue in the fourth quarter was $49.2 million, a 47% increase over $33.5 million in the fourth quarter of 2013. Total revenue for the fourth quarter was $52.5 million, a 43% increase from $36.6 million in the fourth quarter of 2013.⁽¹⁾ The financial results presented in this press release reflect the Company’s revised services revenue recognition policy.

Total subscription revenue for the full year 2014 was $145.9 million, an increase of 52% over $95.7 million a year ago. Total revenue for the year ended December 31, 2014 reached $160.6 million, an increase of 51% over $106.6 million in 2013. ⁽¹⁾

• Demandware signed significant new contracts during the quarter including American Giant, Charles Tyrwhitt, Lola & Liza, Ganni, Movado, Poppin, Vibram, and Yumi International.
• The Cambridge Satchel Company, Dooney & Bourke, Jonathan Adler, Gurwitch Products (Laura Mercier), Marc O’Polo, Men at Work, Pacific Coast Feather, Samsonite, and Vestis Group (Bob’s Stores) launched new initial sites during the quarter.
• Existing customers like Icebreaker, Jarden Consumer Solutions, L’Oreal, Rituals, Rocky Brands, Sandro, Sleepy’s, Skullcandy, and World Kitchen, launched commerce sites for new geographies or for new brands on the Demandware Commerce Cloud platform.

“Our investments in growth and innovation delivered strong results in 2014,” stated Tim Adams, Demandware Chief Financial Officer. “We had strong customer acquisition across all geographies and we rolled out eight major platform releases, not to mention our acquisitions of Mainstreet and CQuotient. During the year, we signed ten new seven digit customers, up from five customers last year. In addition, our average revenue per customer increased to $578,000, demonstrating the tremendous value we provide to our customers. As we look into 2015 and beyond, we plan to continue to invest in sales and marketing and research and development to sign customers as quickly as possible, extend our reach deeper into Asia and Europe and expand our technological leadership. With our success in 2014, we are well positioned to grow our business in 2015 and beyond.”

Demandware’s GAAP net loss attributable to common stockholders for the fourth quarter of 2014 was $3.8 million, or $(0.11) per basic and diluted share, as compared to net income attributable to common stockholders of $2.9 million, or $0.09 per basic share and $0.08 per diluted share, for the fourth quarter of 2013. ⁽¹⁾ Demandware’s GAAP net loss attributable to common stockholders for the year ended December 31, 2014 was $27.1 million, or $(0.78) per basic and diluted share, as compared to a net loss attributable to common stockholders of $18.0 million, or $(0.58) per basic and diluted share for the year ended December 31, 2013. ⁽¹⁾

Non-GAAP net income for the fourth quarter of 2014 was $5.0 million, or $0.14 per basic and $0.13 per diluted share, as compared to non-GAAP net income of $6.7 million, or $0.21 per basic share and $0.19 per diluted share for the fourth quarter of 2013. ⁽¹⁾⁽²⁾ Non-GAAP net income for the year ended December 31, 2014 was $4.2 million or $0.12 per basic share and $0.11 per diluted share, as compared to non-GAAP net loss of $3.3 million, or $(0.11) per basic and diluted share, for 2013. ⁽¹⁾⁽²⁾

At December 31, 2014, we had $243.7 million in cash, cash equivalents and short term investments on the balance sheet, as compared to $279.6 million at December 31, 2013.

^{(1)In its Annual Report on Form 10-K for the year ended December 31, 2014, Demandware will revise its financial statements for the periods ended December 31, 2012, December 31, 2013 and the first nine months of 2014 to correct an immaterial error related to its revenue recognition policy for implementation services.All of the financial results presented in this press release reflect the Company’s revised services revenue recognition policy.}

^{(2)Non-GAAP gross margin, non-GAAP subscription gross margin, Non-GAAP net income (loss) and non-GAAP net income (loss) per share excludes expenses related to stock-based compensation, compensation expense related to contingent retention bonuses and amortization of intangible assets related to acquisitions in 2014.}

Conference Call

To access the call today at 8:30am, please dial (877) 415-3183 in the U.S. or +1 (857) 244-7326, internationally. The Passcode for the call is: 10851395. A live webcast of the call will also be available on the investor relations section of the company’s website. An audio replay will be available for one week following the conclusion of the call through February 26, 2015. The replay number is (888) 286-8010 in the U.S. or +1 (617) 801-6888 internationally. The Passcode for the replay is: 17116870.

About Demandware

Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world’s leading retailers to continuously innovate in our complex, consumer-driven world. Demandware’s open cloud platform provides unique benefits including seamless innovation, the LINK ecosystem of integrated best-of-breed partners, and community insight to optimize customer experiences. These advantages enable Demandware customers to lead their markets and grow faster. For more information, visit www.demandware.com, call +1-888-553-9216 or email info@demandware.com.

Forward-looking Statements

This release contains forward-looking statements, including statements regarding Demandware's future financial performance, market growth, the demand for Demandware's solutions, general business conditions and the potential impact of revisions in the timing of recognition of services revenue. Any forward-looking statements contained in this press release are based upon Demandware's historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent Demandware's expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Demandware disclaims any obligation to update the forward-looking statements in the future. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, our ability to attract new customers; the extent to which customers renew their contracts for our solution; the seasonality of our business; our ability to manage our growth; the variance of our business from quarter to quarter; the continued growth of the market for digital commerce software; the timing and success of solutions offered by our competitors; unpredictable macro-economic conditions; the loss of any of our key employees; the length of the sales and implementation cycles for our solutions; increased demands on our infrastructure; costs associated with operating as a public company; failure to protect our intellectual property; changes in current tax or accounting rules; and other risks and uncertainties. Further information on potential factors that could affect actual results is included in Demandware’s latest Quarterly Report on Form 10-Q filed with the SEC.

Non-GAAP Financial Measures

Demandware has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP gross margin, non-GAAP subscription gross margin, non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP net income (loss) per share. Demandware uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Demandware’s ongoing operational performance. Demandware believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial measures with other companies in Demandware's industry, many of which present similar non-GAAP financial measures to investors to help investors better understand the ongoing operating performance of the business. Non-GAAP gross margin, non-GAAP subscription gross margin, non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP net income (loss) per share exclude expenses related to stock-based compensation and compensation expense related to contingent retention bonuses for the January 2014 acquisition of Mainstreet Commerce. Stock-based compensation is often difficult to predict and often excluded by other companies to help investors understand the operational performance of their business. Non-GAAP gross margin, non-GAAP subscription gross margin, Non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP net income (loss) per share also excludes amortization expense of intangible assets related to our acquisitions of Mainstreet Commerce and CQuotient. Non-GAAP financial measures that the Company uses may differ from measures that other companies may use. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure. A reconciliation of GAAP to the non-GAAP financial measures has been provided in the tables included as part of this press release.