August 7, 2012, 4:56 PM

Demandware revs up growth in Q2 in the wake of going public

The e-commerce platform provider reports 43% revenue growth.

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In its second financial statement since going public in March, e-commerce platform provider Demandware Inc. today reported a 42.6% rise in revenue for the second quarter ended June 30, to $18.4 million from $12.9 million a year ago. That beats Demandware’s 39% growth in the first quarter ended March 31, to $16.1 million from $11.6 million in the prior-year period.

“Our positive business momentum continued into the second quarter of 2012,” says Tom Ebling, Demandware’s CEO. “We plan to continue to invest in sales and marketing and research and development to capitalize on the strong fundamentals of our business and the opportunity we see for e-commerce solutions in the cloud.”

Demandware sells hosted e-commerce software, also known as software-as-a-service, or SaaS, to retailers who pay a minimum monthly rate along with fees based on their online sales. Subscription revenue in Q2 2012 grew to $15.2 million from $10.4 million in Q2 2011, a 46.2% increase, the company says.

Sixteen retailers in the Top 500 list Demandware as their e-commerce platform provider, five in the Second 500 and one in the Top 400 Europe. More information about the Internet Retailer guides and rankings can be found here

Demandware’s largest client is German cataloger and online retailer Neckermann Gruppe, No. 18 in the Top 400 Europe guide, which last year accounted for 16% of Demandware’s annual revenue; the retailer filed for insolvency in July. In the first quarter of 2012, sales of technology and services to Neckermann represented 12% of Demandware’s total revenue, and in Q2 that dropped further, to 10%, Demandware chief financial officer Scott Dussault said in today’s earnings conference call with investment analysts.

Dussault added that Demandware expects Neckermann to continue accounting for a diminishing share of the vendor’s business. “Neckermann continues to trend down as a percentage of total revenue,” he said.

Demandware’s other clients, however, are posting their own strong revenue numbers, he added. Excluding Neckermann, sales compiled last year by Demandware’s customers on average grew 37% in North America and 38% in Europe, more than double the web sales growth in those markets according to estimates from Internet business research company comScore Inc. “It’s really a function of adding customers to the platform and then having those customers grow with us as they execute against their plans,” Dussault said.

Demandware reported a Q2 net loss from operations of $5.1 million compared with a net loss of $1.3 million in Q2 2011. It attributes this to increased investments in sales and marketing. Total operating expenses increased 85.1% to $17.4 million this quarter from $9.4 million in Q2 2011. Staff also grew: total employees at the close of Q2 were 277, a 48.1% increase from 187 in Q2 last year.

“The increase in our total operating expenses was primarily related to headcount to grow the business,” Dussault said. “The majority of our investment in people was in sales and marketing in the United States and in Europe, where we increased headcount from 63 at June 30 last year to 112 at June 30 of this year, an increase of 78%.”

For Q2, Demandware also reported:

● A net loss of $5.6 million compared with a net loss of $1.2 million in Q2 2011;

● 124 customers as of June 30,  up 59% from 78 a year ago, and 445 live client sites, up 76% from 253 a year earlier;

● New clients also expanded their sites into new geographies or for new brands, the company says. Those clients include The Finish Line Inc., Ethan Allen Global Inc., Godiva Chocolatier Inc., Crabtree & Evelyn and London Drugs. Existing customers, such as Mothercare UK Ltd, Perry Ellis (a unit of PEI Licensing Inc.) and Diane von Furstenberg;

● Of total revenue, 53% was generated from North America and 47% was international;

For the first six months of 2012, Demandware reported:

● Revenue of $34.5 million, up about 41% from $24.5 million a year earlier;

● A net loss of $7.9 million, compared with a net loss of $1.8 million a year earlier.

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