Demandware (DWRE) 8-K Demandware Announces Second Quarter 2015 Financial Results

Exhibit 99.1

Demandware Announces Second Quarter 2015 Financial Results

36% Subscription Revenue Growth, 43% Growth on a Constant Currency Basis

BURLINGTON, Mass.--(BUSINESS WIRE)--August 4, 2015--Demandware®, Inc. (NYSE: DWRE), the industry-leading provider of enterprise cloud commerce solutions, today announced financial results for its second quarter ended June 30, 2015.

Second Quarter Highlights

• Subscription revenue for the second quarter was $44.2 million, a 36% year over year increase from $32.5 million in the second quarter of 2014
• 295 live customers at June 30, 2015, an increase of 31% from 226 last year
• 1,316 live sites at June 30, 2015, an increase of 42% from 924 last year
• Conducted XChange Customer Conferences in North America and Europe
• Named Kathleen Patton as Demandware General Counsel

“In the second quarter, we continued to execute our strategy and were pleased with our operational performance,” stated Tom Ebling, Chief Executive Officer, Demandware. “We were thrilled not only with the strong momentum of our digital solution, but also with the increased traction of our predictive email and order management solutions in new and existing customers. Retailers are increasingly looking for a single view into both the consumer and across the enterprise organization. With our strategic moves in 2015, we are well positioned to deliver the industry’s first enterprise unified commerce platform in the cloud.”

“Kathleen has served as our Associate General Counsel since 2012. Given her deep understanding of our company, our clients and our strategy, she is a great addition to the executive leadership team,” continued Mr. Ebling.

• Demandware signed significant new customers during the quarter including At Home Stores, Brookstone, Cortefiel, SA, Design Within Reach, Furniture Village, The Jewellery Channel, Stonewall Kitchen, and V&D B.V.
• Leading retailers such as American Giant, Ganni, John Hardy, Kase World Wide, L.L.Bean International and Linelux SA launched initial sites on the Demandware Commerce Cloud.
• Existing customers like L’Oreal, Perry Ellis, Samsonite, Sandro, Vestis Retail Group (EMS) and Wolverine Worldwide expanded their operations on the platform launching additional commerce sites.

“We were pleased that our cloud platform and innovative solutions empowered our customers to expand their operations and grow their businesses,” stated Tim Adams, Demandware Chief Financial Officer. “In addition, our investments in sales and marketing continued to demonstrate results with new large enterprise scale and mid market customers. Our success increased our average annual contract value (ACV) for new clients to approximately $540,000 in the second quarter.”

Total revenue for the second quarter was $53.9 million, a 47% increase over $36.7 million in the second quarter of 2014. Our GAAP net loss for the second quarter of 2015 was $20.0 million, or $(0.56) per share, as compared to a net loss of $8.5 million, or $(0.25) per share, for the second quarter of 2014. Non-GAAP net loss for the second quarter of 2015 was $6.2 million, or $(0.17) per share, as compared to non-GAAP net loss of $53,000, or $(0.00) per share, for the second quarter of 2014.⁽¹⁾

At June 30, 2015, we had $186.8 million in cash, cash equivalents and short term investments on the balance sheet, as compared to $243.7 million at December 31, 2014.

⁽¹⁾ 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 excludes expenses related to stock-based compensation, contingent compensation expense related to acquisitions, amortization of intangible assets related to acquisitions and the non-cash tax benefit associated with the acquisition of Tomax in January 2015.

Quarterly Conference Call

To access the call which will take place today at 8:30 a.m. ET, please dial (866) 318-8620 in the U.S. or +1 (617) 399-5139 internationally. The Passcode for the call is: 37947284. 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 August 11, 2015. The replay number is (888) 286-8010 in the U.S. or +1 (617) 801-6888 internationally. The Passcode for the replay is: 47592508. The replay will also be available as a webcast on Demandware’s Investor Relations website.

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, and general business conditions. 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 and 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 amortization expenses related to stock-based compensation, contingent compensation expense related to acquisitions, amortization of intangible assets and the non-cash tax benefit related to our acquisitions. 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 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.

Demandware, Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
	June 30, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	118,160		$	158,827
Short-term investments		68,598			84,880
Accounts receivable, net of allowance for doubtful accounts		44,234			42,441
Prepaid expenses and other current assets		10,526			8,564
Total current assets		241,518			294,712
Property and equipment, net		24,929			14,028
Intangible assets, net		24,290			10,266
Goodwill		60,034			24,379
Other assets		2,671			1,785
Total assets	$	353,442		$	345,170
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,213		$	3,581
Accrued expenses		25,557			24,871
Deferred revenue		26,693			22,799
Other current liabilities		3,662			282
Total current liabilities		59,125			51,533
Long-term liabilities:
Deferred revenue		14,265			12,168
Other long-term liabilities		2,567			1,424
Total liabilities		75,957			65,125
Redeemable noncontrolling interest		663			823
Stockholders' equity:
Common stock		359			353
Additional paid-in capital		415,013			391,896
Treasury stock, at cost		(137	)		(137	)
Accumulated other comprehensive loss		(632	)		(352	)
Accumulated deficit		(137,781	)		(112,538	)
Total stockholders' equity		276,822			279,222
Total liabilities, redeemable noncontrolling interest and stockholders' equity	$	353,442		$	345,170

Demandware, Inc.
Condensed Consolidated Statements of Operations
(unaudited; in thousands, except per share data)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenue:
Subscription	$	44,174		$	32,505		$	87,422		$	62,410
Services and other		9,684			4,241			16,712			6,910
Total revenue		53,858			36,746			104,134			69,320
Cost of revenue:
Subscription		9,712			6,266			18,585			11,700
Services and other		6,575			3,739			12,745			7,213
Total cost of revenue		16,287			10,005			31,330			18,913
Gross profit		37,571			26,741			72,804			50,407
Operating expenses:
Sales and marketing		29,026			17,621			50,335			34,104
Research and development		16,504			8,040			30,187			15,011
General and administrative		12,191			9,444			23,595			17,756
Total operating expenses		57,721			35,105			104,117			66,871
Loss from operations		(20,150	)		(8,364	)		(31,313	)		(16,464	)
Other income:
Interest income		92			75			191			141
Interest expense		-			(30	)		-			(83	)
Other income		90			22			279			11
Other income, net		182			67			470			69
Loss before income taxes		(19,968	)		(8,297	)		(30,843	)		(16,395	)
Income tax provision (benefit)		139			227			(5,456	)		492
Net loss	$	(20,107	)	$	(8,524	)	$	(25,387	)	$	(16,887	)
Net loss attributable to noncontrolling interest		(86	)		-			(144	)		-
Net loss attributable to Demandware	$	(20,021	)	$	(8,524	)	$	(25,243	)	$	(16,887	)
Net loss per share attributable to Demandware, basic and dilutive	$	(0.56	)	$	(0.25	)	$	(0.71	)	$	(0.49	)
Weighted average common shares outstanding, basic and dilutive		35,718			34,712			35,540			34,562

Demandware, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(20,107	)	$	(8,524	)	$	(25,387	)	$	(16,887	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		3,034			1,645			5,772			2,943
Consulting expense settled with a restricted stock unit award		269			77			555			77
Bad debt expense		174			-			571			269
Stock-based compensation		9,730			7,334			16,786			13,001
Deferred income taxes		(170	)		-			(5,977	)		-
Amortization of premium on marketable securities		101			226			202			356
Other non-cash reconciling items		(35	)		64			60			43
Changes in operating assets and liabilities:
Accounts receivable		(4,580	)		(1,603	)		7,082			3,802
Prepaid expenses and other current assets		963			563			(773	)		(5,284	)
Other long term assets and liabilities		1,832			1,146			3,341			(2,205	)
Accounts payable		823			735			130			285
Accrued expenses		7,202			(955	)		(2,011	)		(2,473	)
Deferred revenue		572			1,267			1,403			1,823
Net cash (used in) provided by operating activities		(192	)		1,975			1,754			(4,250	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(6,482	)		(1,898	)		(13,291	)		(8,283	)
Purchase of marketable securities		(26,562	)		(45,372	)		(51,131	)		(82,275	)
Sale and maturity of marketable securities		38,294			13,725			71,486			30,950
Acquisition, net of cash acquired		-			-			(54,733	)		(12,136	)
Net cash provided by (used in) investing activities		5,250			(33,545	)		(47,669	)		(71,744	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares purchased under Employee Stock Purchase Plan		803			643			803			643
Proceeds from exercise of stock options		2,803			1,368			4,980			4,716
Payments of equipment notes		-			(611	)		-			(1,221	)
Payments of software financing agreement		-			-			-			(766	)
Net cash provided by financing activities		3,606			1,400			5,783			3,372
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		196			(11	)		(535	)		(4	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		8,860			(30,181	)		(40,667	)		(72,626	)
CASH AND CASH EQUIVALENTS — Beginning of period		109,300			199,980			158,827			242,425
CASH AND CASH EQUIVALENTS — End of period	$	118,160		$	169,799		$	118,160		$	169,799

Demandware, Inc.
Stock Based Compensation Expense
(unaudited, in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015			2014
Cost of subscription revenue	$	267		$	167	$	490		$	300
Cost of services revenue		885			516		1,512			909
Sales and marketing		2,990			1,974		5,257			3,467
Research and development		3,032			1,795		4,899			3,331
General and administration		2,556			2,882		4,628			4,994
	$	9,730		$	7,334	$	16,786		$	13,001
Demandware, Inc.
Contingent Compensation Expense Related to Acquisitions
(unaudited, in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015			2014
Sales and marketing	$	1,137		$	436	$	2,181		$	762
Research and development		1,911			436		3,638			762
	$	3,048		$	872	$	5,819		$	1,524
Demandware, Inc.
Amortization Expense Related to Acquired Intangible Assets
(unaudited, in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015			2014
Cost of subscription revenue	$	1,102		$	228	$	2,154		$	402
Sales and marketing		123			37		222			74
	$	1,225		$	265	$	2,376		$	476
Demandware, Inc.
Non-Cash Taxes
(unaudited, in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2015			2014		2015			2014
Non-cash tax (benefit)	$	(215	)	$	-	$	(6,088	)	$	-

Demandware, Inc.
Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures
(unaudited; in thousands, except per share data)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Reconciliation between GAAP operating (loss) and non-GAAP operating (loss) income:
GAAP operating (loss)	$	(20,150	)	$	(8,364	)	$	(31,313	)	$	(16,464	)
Add back:
Stock-based compensation		9,730			7,334			16,786			13,001
Contingent compensation expense related to acquisitions		3,048			872			5,819			1,524
Amortization expense related to acquired intangible assets		1,225			265			2,376			476
Non-GAAP operating (loss) income		(6,147	)		107			(6,332	)		(1,463	)
Numerator:
Reconciliation between GAAP net loss attributable to Demandware and non-GAAP net loss:
GAAP net loss attributable to Demandware	$	(20,021	)	$	(8,524	)	$	(25,243	)	$	(16,887	)
Add back:
Stock-based compensation		9,730			7,334			16,786			13,001
Contingent compensation expense related to acquisitions		3,048			872			5,819			1,524
Amortization expense related to acquired intangible assets		1,225			265			2,376			476
Non-cash tax (benefit) (1)		(215	)		-			(6,088	)		-
Non-GAAP net loss		(6,233	)		(53	)		(6,350	)		(1,886	)
(1) In the first and second quarter of 2015, Demandware recorded a non-cash tax benefit associated with the acquisition of Tomax.
Denominator:
GAAP and Non-GAAP weighted average common shares outstanding, basic and dilutive		35,718			34,712			35,540			34,562
Non-GAAP net loss per share, basic and diluted:	$	(0.17	)	$	(0.00	)	$	(0.18	)	$	(0.05	)
Reconciliation between GAAP subscription gross margin and non-GAAP subscription gross margin:
Subscription revenue	$	44,174		$	32,505		$	87,422		$	62,410
Cost of subscription revenue		9,712			6,266			18,585			11,700
Subscription gross profit		34,462			26,239			68,837			50,710
Add back:
Stock-based compensation allocated to cost of subscription revenue		267			167			490			300
Amortization expense related to acquired intangible assets allocated to cost of subscription revenue		1,102			228			2,154			402
Non-GAAP Subscription Gross Profit		35,831			26,634			71,481			51,412
Non-GAAP Subscription Gross Margin	81%			82%			82%			82%
Reconciliation between GAAP total gross margin and non-GAAP total gross margin:
Total revenue	$	53,858		$	36,746		$	104,134		$	69,320
Total cost of revenue		16,287			10,005			31,330			18,913
Gross profit		37,571			26,741			72,804			50,407
Add back:
Stock-based compensation allocated to cost of revenue		1,152			683			2,002			1,209
Amortization expense related to acquired intangible assets allocated to cost of revenue		1,102			228			2,154			402
Non-GAAP Total Gross Profit		39,825			27,652			76,960			52,018
Non-GAAP Total Gross Margin	74%			75%			74%			75%

CONTACT:
Investor Relations Contact:
Erica Smith
Vice President, Investor Relations, Demandware
Office: 781-425-1222
Email: esmith@demandware.com