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Amber Road (NYSE:AMBR)
Q1 2019 Earnings Call
May. 09, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, everyone, and welcome to the Amber Road first-quarter 2019 earnings conference call. Today's conference is being recorded. At this time for opening remarks, I'd like to turn the conference over to Kevin Brogan, investor relations. Please go ahead, sir.

Kevin Brogan -- Investor Relations

Thank you, operator. And thank you for joining us on Amber Road's first-quarter 2019 earnings conference call. As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available on our website following the call.

By now you should have received a copy of our press release that was distributed this afternoon. If you have not, it is available on the investor relations section of our website. Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements regarding future events and financial performance, including growth from our bookings and sales pipeline, client deployments, continued product demand and our guidance for our second-quarter and full-year fiscal 2019. We caution you that such statements reflect our best judgment based on factors currently known to us and that the actual events or results could differ materially.

Please refer to the documents we file from time to time with the SEC, in particular, our Form 10-K, 10-Q and our Form 8-K filed today with our press release. These documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information.

We disclaim any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but we will not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum. I would also like to inform you that Amber Road, its directors and certain of its executive officers may be deemed to be participants in the solicitation of proxies from our shareholders in connection with our 2019 annual meeting of shareholders, which is scheduled for June 18, 2019. We intend to file a proxy statement and related proxy materials with the SEC in connection with any solicitation or proxies from our shareholders in connection with the 2019 annual meeting.

Shareholders of Amber Road are strongly encouraged to read such proxy statements and all other related materials filed with the SEC carefully and in their entirety when they become available as they will contain important information about the 2019 annual meeting. We will not comment on any proxy concept or take any question regarding any proxy concepts on this call. During the call, we will also discuss our non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles.

A reconciliation of the GAAP and non-GAAP results provided in today's press release. The projections that we provide today exclude stock-based compensation, which cannot be determined at this time so are therefore not reconciled in today's press relapse. With that, I'll turn the call over to our CEO James Preuninger. Jim.

Jim Preuninger -- Chief Executive Officer

Thank you, Kevin. I'm very pleased with our results in the first quarter as both revenue and profit exceeded the high end of our guidance range. Total revenue came in at 21.1 million and subscription revenue was 15.8 million. Adjusted EBITDA for the quarter was 1.5 million and we generated 3.2 million in cash flow from operations.

We're delivering on our profitable growth goals by running a business that is financially strong with improving levels of profit and cash flow. I'm also very happy with our sales pipeline development in the first quarter. It is well balanced across the geographies and the products that we sell and it is at a much higher level than we've ever seen before. I believe we are extremely well-positioned for the rest of this year.

In 2019 and beyond, we expect to take advantage of the opportunities being created by the increased complexity and changing conditions in global trade. We will increase our focus on sales and marketing, drive expansion into new markets and return subscription revenue growth at double-digit levels all while improving profitability. Today's trade policy landscape calls for leading technologies that can help identify opportunities for growth, boost productivity, ensure compliance and minimize risk for global companies. To efficiently import and export goods, companies need to access regulatory information for all of the countries in which they trade and couple that with a digital model of their supply chain to enable automation.

Collecting, normalizing and making sense of global trade regulations is very difficult, given the number of countries and government agencies writing laws and the vast differences in trade regimes. Maintaining a complete, timely and accurate database of trade regulations has become prohibitively expensive for any individual company. Companies need us more than ever. Amber Road offers the industry's most comprehensive database of government regulations international business rules.

Our global knowledge covers trade content for more than 170 countries and over 170 free trade agreements. As an example of the velocity of change being implemented by trade policy, Amber Road was required to update its regulatory database with nearly 18 million new records last year. Global knowledge powers our GTM suite of software by underlying those processes of importing, exporting and administering preferential trade agreements. No other company comes even close to matching the scale, accuracy and the integration of our global knowledge trade content with software.

Our integrated SaaS platform, combined with our global knowledge is becoming increasingly important in the current state of global trade that is burdened with the ongoing trade war between the US and China, as well as new trade opportunities between the EU and China and the unprecedented reforms that are pending given Brexit and the NAFTA replacement called USMCA. We see an increased need for our global knowledge content, driving our free trade agreements and new product innovation. Content in our subscription has a higher subscription revenue ratio to services and it delivers significantly better gross margins. Demand for content is growing and will continue to grow and will help us in achieving our goal of returning to double digit subscription growth rates.

A great example of the demand for content applied to solve complex trade problems is visible with the recent product announcement we made called Carrier Cargo Screening. This innovative software product was built on the foundation of our leading restrictive party screening technology and it uses global knowledge. This solution addresses the challenges that carriers face in identifying shipments that may contain prohibited, hazardous or dual use goods based only on the limited information provided on a transportation manifest or an air waybill. The global logistics industry is challenged like never before by customs authorities to meet regulations generally known as "know your customer".

These regulations require customers to screen the shipper, the recipient of the goods and the end use of the products that they carry to ensure that the goods are not shipped to a sanctioned party or an embargoed country and comply with non-proliferation of dual use goods that are unauthorized for general trade. Customs authorities around the world are increasingly monitoring the effects of logistics providers' cargo screening processes to determine compliance and they are issuing steep fines for non-compliance. To date, most carriers struggle to meet these regulations, given only manual processes. To support our new Carrier Cargo Screening Solution, we have developed new content libraries and advanced algorithms to offer a robust supply chain risk platform that is ideally suited for global logistics providers.

We have solved a critical problem by combining our advanced technologies with our vast experience of linking software to content. This is a greenfield opportunity. We are already seeing this new offering generating significant interest and we expect to close many deals with this new product in 2019. As I noted last quarter, we have reorganized Amber Road's staff and focused our go-to-market programs around several key objectives, which will drive our business in 2019 and beyond.

One of these programs is called Account Based Marketing, or ABM. ABM is designed to complement more traditional lead generation with efforts to engage a very specific set of high-value target enterprises that will engage us faster and hopefully close business at a higher level of margin. ABM facilitates alignment between various Amber Road functions, including sales, marketing, business development and product management to better create messaging and higher levels of sales engagement with senior executives. A good example of how ABM is helping us build opportunities was a program we launched in the recent quarter targeting the automotive vertical.

As you know, in 2017 Renault-Nissan subscribed to our trade automation solutions to automate free trade agreements with the goal of dramatically lowering duties and taxes. In Europe, they are currently using more than 30 free trade agreements and have become a great reference for us. We have used this customer case study to create an ABM program. We're targeting automotive OEMs who are now in a near frenzy surrounding the need to implement FTAs, Free Trade Agreements, with a special emphasis on the NAFTA replacement called USMCA.

The response to our marketing campaign has been phenomenal. We have numerous large opportunities in the pipeline with this program which we hope will be converted this year. Another good example of the success we're having with ABM is within the semiconductor industry in China. We created a specific marketing campaign to target the three largest semiconductor companies in the region to highlight the proven model we have for tax savings using our China trade management solution.

This program had immediate success as we've already closed two deals. I will profile one of these wins next. Applied materials adopted our China trade management solution in Q1. They have a large spare parts business that uses a dozen bonded warehouses operated by service providers inside and outside of bonded zones all across China.

They recognize the challenge of manually applying the China customs handbook to reconcile inventory balances giving all of the complicated inbound and outbound declaration types. Applied materials selected Amber Road's China trade management solution because of our reputation to deliver success quickly, to minimize compliance issues and to reduce the taxes they would have to pay. This was a tremendous win for Amber Road that we accomplished in record time. You also recall our announcement last quarter about the formation of a new sales team to focus on our installed accounts.

With our new sales account management team dedicated to customer success and expansion to drive up sells and cross sells, we think we can have far more success growing our existing customer base. The account management team is up and running. They have deals that are working through sales cycles and we're encouraged by the work being done to secure subscription increases upon renewals. In conclusion, our 2019 guidance continues to call for double-digit subscription growth rates exiting the year and full-year adjusted EBTIDA margins that will continue to expand.

We also continue to believe that for 2020, Amber Road can sustain solid double-digit subscription revenue growth and expand adjusted EBITDA margins into the double digits while also improving our cash flow. With that, let me turn the call over to Tom.

Tom Conway -- Chief Financial Officer

Thanks, Jim. I'll start with an overview of our first-quarter 2019 financial performance, and then I'll provide some commentary on our second-quarter and full-year 2019 outlook. Following my closing remarks, we'll open the call up for your questions. Regarding the first-quarter results.

Beginning with the statement of operations, we generated GAAP revenue in the quarter of 21.1 million compared to 20.1 million in the first quarter of 2018. Subscription revenue was $15.8 million, an increase of 5% compared to $15.1 million in the prior year period. Our professional services revenue was $5.3 million compared to $5 million in the same period a year ago. Our trailing 12-months recurring revenue retention rate for the first quarter of 2019 was 100%, again reflecting the long-term value of our customer relationships and giving us a high level of revenue and billings visibility.

On a GAAP basis, our gross profit was 12 million or 57% of total revenue compared to 10.4 million or 52% of total revenue in the prior year period. Subscription gross profit was 10.6 million or 67% of subscription revenue compared to 9.8 million or 65% of subscription revenue in the first quarter of 2018. Our gross profit on professional services was 1.5 million or 27% of professional services revenue compared to 654,000 or 13% of professional services revenue in the same period last year. On a GAAP basis, total operating expenses were 14.8 million compared to 15.4 million in the first quarter of 2018.

This resulted in a first-quarter GAAP operating loss of $2.8 million compared to a GAAP operating loss of $5 million in the first quarter of last year. On a non-GAAP basis, our Q1 operating income was $283,000, an improvement compared to an operating loss of $736,000 in the year ago period. Please see our press release for the GAAP to non-GAAP reconciliations. We are pleased with the leverage we are seeing in the business as we continue to drive both growth and profitability and believe we have set the company on a path to deliver improved levels of profit and cash flow.

As we do this, we will continue to make investments in sales and research and development to support the opportunities we see ahead for the business. Our GAAP net loss was $3.3 million for the first quarter of 2019. This amount compares to a GAAP net loss of $5.4 million in the prior year period. GAAP net loss per share was $0.12 in the first quarter of 2019 compared to a net loss per share of $0.20 in the first quarter of 2018.

These per share amounts are based on 28.6 million and 27.6 million shares outstanding, respectively. On a non-GAAP basis, our net loss was $245,000 in the first quarter of 2019. This amount compares to a non-GAAP net loss of $1.2 million in the prior year period. Non-GAAP net loss per share was $0.01 in the first quarter of 2019 compared to a net loss per share of $0.04 in the prior year period.

These per share amounts are based on 28.6 million and 27.6 million shares outstanding respectively. We are pleased to report another quarter of positive adjusted EBITDA. For the first quarter of 2019, our adjusted EBITDA was $1.5 million, an improvement compared to adjusted EBITDA of $548,000 in the same period last year. Turning our the focus to the balance sheet, as of March 31, 2019, we had cash and cash equivalents of 9.6 million compared to 7.5 million as of December 31, 2018.

Cash flow from operations in the first quarter of 2019 was $3.2 million, an improvement compared to $1.4 million in Q1 of 2018. Turning to guidance, for the full-year 2019 we continue to expect subscription growth to be the driver of our business and for subscription revenue to show improving year over year growth rates as we move through the quarters and exit the year at double digit year over year growth. We continue to expect total revenue in the range of 88.7 to $91.7 million. We are raising our non-GAAP adjusted operating income and now expect to be in the range of $700,000 to $3.7 million.

On a per share basis, we are now expecting a range of non-GAAP adjusted net low per share of $0.04 to non-GAAP income per share of $0.07. These per share amounts assume 28.8 million basic shares outstanding to 31.2 million fully diluted shares outstanding respectively. We also expect to continue to generate positive cash flow from operations throughout the year. For the second quarter of 2019, total revenue was expected to be in the range of 21.3 million to 21.9 million.

Within this, we expect services revenue to be approximately flat sequentially at the midpoint of the range due to an increased use of our quick start programs and the adoption of our content related solutions, which have a higher ratio of subscription revenue to services revenue. Non-GAAP adjusted operating loss is expected to be in the range of 600,000 to 1.2 million. To note, in Q2 our annual salary increases take effect and we've shifted the timing of some of our marketing programs into Q2. Non-GAAP adjusted net loss per share is expected to be in the range of $0.06 to $0.04 and these per share amounts assume 28.6 million basic shares outstanding.

Please see the GAAP to non-GAAP guidance reconciliations provided in our press release. In conclusion, we are well-positioned for long-term future success. Our growth and profit profiles are strong and we are well-positioned to capitalize on the strong demand trends we see in our markets. Operator, if you would please open the line for questions.

Questions & Answers:


Operator

[Operator instructions] We'll hear first today from Scott Berg with Needham.

Josh Reilly -- Needham and Company -- Analyst

Hey, guys. This is Josh on for Scott. Congrats on the strong quarter. After having the dedicated upsell team in place for a quarter now, how is the change taking hold within the sales organization? And do you believe the sales cycle for these deals will be consistent with the rest of the company or possibly shorter?

Jim Preuninger -- Chief Executive Officer

We're just getting started obviously, but a couple things have occurred that are very positive for us. One is our sales team, the sales directors that have been in place, largely charged with new logo development, have now got a lot more time to do their primary mission. And I think it's helping us build a pipeline. They're engaged in these ABM programs that is looking like they're very successful for us.

So that's been a real windfall for us. The account team that we put in place is -- you may recall we sourced those folks all from our professional services group. So these are people that have been with us for five to ten years, they know the domain, they know our products, they know our programs and policies very well. And so they were really able to hit the ground running.

Many of them were assigned accounts that they helped implement. So they understand those businesses as well. I believe that in time we're going to see that they'll build some nice pipelines and that sales cycles with installed accounts should run much faster than sales cycles with brand new companies, brand new logos.

Josh Reilly -- Needham and Company -- Analyst

And then given some of the moving parts with global trade in 2019, including Brexit likely delayed until October now and the new NAFTA still not ratified, is this impacting Q2 bookings? And could we see a more back-half weighted year as a result of this?

Jim Preuninger -- Chief Executive Officer

I think our forecast I should say for Q2, sales forecasts that I have is the strongest I've ever seen in the company's history. A lot of it is driven by some of these changes. A lot of it's driven by USMCA. I mean companies can't wait for USMCA to be ratified.

If you're a user of NAFTA today, and we have many NAFTA customers and we have many of the -- are evaluating our USMCA solution, you need to get prepared for it now. And I think there is a high degree of comfort that this thing will be ratified. It's a matter of time. It could be delayed further, but everybody believes it's coming.

We have the USMCA trade agreement already codified. It's ready to go, we're in demonstrations with customers and we're taking early orders for it. So I see Q2 as a very strong quarter in bookings and a lot of it's driven because people are getting out in front of this.

Josh Reilly -- Needham and Company -- Analyst

And then just maybe one more question. Can you discuss how your internal content development team is able to quickly integrate all of these new rules into different modules? And do you guys use this with the sales pitch with customers? And how does that impact customer satisfaction as all of these changes take place?

Jim Preuninger -- Chief Executive Officer

So our content group is quite large. We have over 115 employees, another 50 contractors that are in countries that are -- it's hard for us to get to if you will [Inaudible] large group. They're all professionals, these aren't data entry operators. These are folks that came out of trade professions.

They might have been trade attorneys or customs brokers, other kinds of roles. They know trade very well. The group speaks over 30 languages and we've developed an iso process around how to collect, normalize, make sense of content and then how to make it actionable and intelligent for a software to use it. It's been an arduous journey.

I mean we started doing this thing in the early 2000. We struggled, frankly, for the first ten years to figure out how to make this work. It was not easy. But I think we've perfected the process now, we're very disciplined about it.

It's a machine and so a new free trade agreement like USMCA, we can grab that, codify it and have it ready to go in a couple of months' time. Right? Our competitors who tend not to use content, but would rather hard code a new free trade agreement, they have a big software development effort and so the comparison is really striking and I think it does differentiate us with our customers who a lot of times aren't looking at just USMCA or one or two free trade agreements, but may be wanting to buy 20 or 30 or more.

Josh Reilly -- Needham and Company -- Analyst

OK great. Very helpful. Thanks guys.

Jim Preuninger -- Chief Executive Officer

Thank you, Josh.

Operator

We'll hear next from Tom Roderick with Stifel.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Good afternoon gentlemen. Thanks for taking my questions. Let me piggyback on the last question just a little bit relative to sort of sales cycles and some of the things that you're doing from an organizational perspective. I guess the question in looking at a subscription growth line here that was around 5% this quarter, and I can kind of back into about 5% next quarter, Tom, with what your guidance looks like.

So certainly, looking for a ramp. I guess the question I'd have is just how much does sales productivity itself need to improve to start hitting double digit subscription growth sustainably? And is that just a function of close rates going up? Because if I hear what you're talking about relative to anticipated bookings for the next quarter, USMCA, some of the initiatives you've got under way, it seems like the pipeline is there and you just need to close. But perhaps you could kind of talk through pipeline generation versus close rates and what that all means for productivity and just how much more coverage you think you need to sustainably get to that double-digit subscription growth rate.

Tom Conway -- Chief Financial Officer

I believe by implementing the account management function, we actually increased our sales capacity without having to hire new heads considerably. Right? We just gave people that are good at hunting a lot more time to go do that. I think our account-based marketing programs are showing us that we can identify larger, more profitable deals that we compete better at more efficiently as well. So our marketing spend and our marketing dollars are showing more efficiency.

The pipeline generation that we've had in the last four or five months has been incredible and really with larger deals, I mean because we're focused in on going after those areas where we really do very well. So the seven figure a year annual subscriptions are showing themselves to us and we're really concentrating on them. I think if we just hold our close rates that we've historically had given the pipeline that we have today, that second half objective will come to us quite easily.

Tom Roderick -- Stifel Financial Corp. -- Analyst

So what I'm hearing is more of an emphasis and more of an expectation that larger deals will close and perhaps not much of a change on the mid-market deals. But it sounds like larger deals are going to be what really move the needle here.

Tom Conway -- Chief Financial Officer

Yes, I think. I mean mid market's doing well. We're forecasting a bump in mid-market deals year over year of almost 20%. We're also doing well in China.

There we're seeing a bump in deals of about 20% as well. But those deals are a lot smaller, so they don't move the needle quite as well. But I think we're being very effective there. They are machines, they're hitting their objectives really every quarter.

I think in the enterprise space, it's about constant trading on the deals where we think we can have the most success, right. A little bit larger subscription, a little bit more profitable subscription and have a repeat performance built on that kind of success.

Tom Roderick -- Stifel Financial Corp. -- Analyst

So it's been a year now since you sort of kicked off some of the initiatives around blockchain and I know sort of the hype cycle, the way some of these big longer term trends can shape up. You launch things and then it takes a little bit of -- a little while for discovery. But perhaps you could just give us an update, Jim, on the progress of the blockchain initiative. What customers are saying and asking about it.

Jim Preuninger -- Chief Executive Officer

Blockchain was a hot topic. We had some parties, some partners who were interested in working with us to try to understand how trade automation could be applied to a blockchain. We had a number of proof of concepts and lab works that -- lab exercises that we engaged in. I still think that there is some potential out there in the marketplace for it, but frankly customers aren't beating a path to our door for it.

And so rather than I think spending money and time on something that was really a little bit more speculative, we shifted back and started listening to where we had some significant demand. And I talked on the call tonight already about our cargo screening application. I mean that was an area where many customers, logistics companies and carriers, came to us and said we're getting killed. We're getting audited; some of them were being fined.

There's no solution in the marketplace. It's a lot like restricted party screening, but it's got other kinds of capabilities that requires content. You guys can build this thing. And so really on the support of those relationships, knowing that when we built it that we'd have ready-made customers for it, we made those kinds of investments.

So I think we've tuned our programs and the R&D programs around and said, you know, if it ain't customer-focused, we're probably not going to be engaging right now.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Fair enough. Makes sense. That's helpful. I appreciate it.

I'll jump back in queue. Thank you, guys.

Operator

[Operator instructions] We'll hear next from Jason Celino with KeyBanc Capital Markets.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Hey guys, can hear me OK?

Jim Preuninger -- Chief Executive Officer

Yeah, absolutely. Yeah.

Jason Celino -- KeyBanc Capital Markets -- Analyst

One question. So it looks like the results from the quarter, at least on the top line, came in a little bit better than maybe we had been expecting. But you're kind of maintaining guidance for the full year. Can you maybe talk about some of the dynamics as to why we're not seeing kind of that flow through?

Tom Conway -- Chief Financial Officer

I think the commentary on the prepared remarks talked about some services in Q2. I think what we talked about in our subscription growth rates and exiting the year double digit we still see really good proof points for that. So I think we're really excited about the subscription side. I think some things around the quick start program and other commentary around content heavy deals and where our content isn't as services oriented as perhaps a lot of modules of software would be from an implementation perspective.

So I think that that's just going to keep our services revenues pretty flat sequentially Q2 to Q1. But again, we're watching the subscription line. It's the one quite honestly, we're more excited about and as Jim talked about with the pipeline strength and the ABM and our account managers, I think we feel good about that.

Jim Preuninger -- Chief Executive Officer

I mean we did have a beat in Q1, but it was, as you put it, slight or modest. In our view it didn't warrant a raise to our annual numbers. We'll address that I think in August though.

Jason Celino -- KeyBanc Capital Markets -- Analyst

And then anecdotally I'd love to hear some feedback on the China trade news was new this week. I mean we all see it in the newspapers, but relative to some of your customers did any conversations come up or what was kind of the reaction among your customer base?

Jim Preuninger -- Chief Executive Officer

Our customers are very tuned in to this thing. This is a big challenge. And a lot of the demand that people have for free trade agreements where they can shift out of what is the general trade. It's the rate increases, the tariff increases are really against the general trade.

If you can step out of that and participate in a free trade agreement, void that increase. So a lot of free trade agreement demand we're seeing is really folks saying the rest of the tariff is too volatile. I need to find savings and I need to get stability. So this is -- it's a big issue for folks and it helps create a lot of energy around the kinds of things that we do, so we're working with our customers for that.

Operator

And with no other questions, I'd like to turn things back to Jim for closing remarks.

Jim Preuninger -- Chief Executive Officer

Thank you, operator. In closing, we really do appreciate the support of our shareholders and we look forward to speaking with them again very soon. I'd like to express my thanks to our team and the hard work that they had in the recent quarter. And we're really looking forward to a great close to 2019.

Thank you.

Operator

[Operator signoff]

Duration: 35 minutes

Call participants:

Kevin Brogan -- Investor Relations

Jim Preuninger -- Chief Executive Officer

Tom Conway -- Chief Financial Officer

Josh Reilly -- Needham and Company -- Analyst

Tom Roderick -- Stifel Financial Corp. -- Analyst

Jason Celino -- KeyBanc Capital Markets -- Analyst

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