BrightView Holdings, Inc. (BV) Q2 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to the Bazaarvoice Second Quarter Fiscal 2016 Earnings Conference Call. [Operator Instructions] Also as a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Ms. Linda Wells. Thank you. You may begin.

Good afternoon and welcome to today’s conference call to discuss Bazaarvoice’s financial results for the second quarter of fiscal 2016 ending October 31, 2015. I am joined today by Gene Austin, Chief Executive Officer and Jim Offerdahl, Chief Financial Officer. Following the prepared remarks, we will have a question-and-answer session. Please note that we are simultaneously webcasting this call on our Investor Relations website at investors.bazaarvoice.com. The earnings release with our results for the second quarter of fiscal 2016 was issued after the market closed today. Certain statements made during this call, including those concerning our business outlook and guidance, growth plans and opportunities, potential acquisitions, outlook on legal matters, sales execution and the ability to capitalize on our opportunities are all forward-looking statements. Forward-looking statements are subject to a number of risks, uncertainties and assumptions that are described in our SEC filings, including the Risk Factors section of our Form 10-K for the fiscal year ended April 30, 2015 filed with the SEC on June 25, 2015. Additional information will also be set forth in our future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that we may make with the SEC. Should any of the risks or uncertainties materialize or should any of our assumptions prove to be incorrect, actual results could differ materially and adversely from those anticipated or implied in these forward-looking statements. We do not intend and undertake no duty to release publicly any update or revisions to any forward-looking statements made during this call. The divestiture of PowerReviews is completed on July 2, 2014. As a result of this, PowerReviews revenues related expenses and loss on disposal net of tax are components of loss from discontinued operations and the condensed consolidated statement of operations since our fourth quarter of fiscal 2014 and all comparative fiscal quarters presented. The statement of cash flows is reported on a combined basis without separately presenting cash flows from discontinued operations for all periods presented. Some of the numbers that we will discuss today during this call will be presented on a non-GAAP basis. Today’s press release, together with the accompanying tables, contains the calculations of these non-GAAP financial measures and a full reconciliation between the corresponding measure, the GAAP measure and the non-GAAP measure, including the reconciliation of GAAP to non-GAAP operating results from continuing and discontinued operations. Now, I would like to turn the call over to Gene.

Thank you, Linda and my thanks to all of you for joining us on today’s call. Midway through our fiscal 2016, I continue to believe we can turn around the growth rates of our company over time. We delivered strong financial results for the second quarter despite disappointing advertising results with revenue of $49.9 million above our guidance, positive adjusted EBITDA of $1.1 million significantly ahead of our guidance, and our best ever quarter for positive cash flow from operations of $13.6 million, a nice performance overall, but much work remained. We have commented frequently about the many investments we have put into place to improve our client satisfaction in dollar churn. Client satisfaction in our business is fundamental to rebuilding a good growth trajectory and is the foundation for healthy renewals in cross and up-sell opportunities. Halfway through our year, we are seeing client satisfaction progress across the board. We have purposefully invested gross margin dollars to drive a robust on-boarding experience, stronger post sales account management, improved product quality and enhanced technical support. And over the last several quarters, we have rebuilt many of our internal processes to completely change the customer experience. Our on-boarding scores have improved significantly and are now at satisfactory level for the first time in many years. As an aside, we had a good launch quarter at 103 clients. Our tech support team is now consistently scoring high in responsiveness and quality response. Product quality has made strong strides, thanks to focused investments. And finally, our overall client satisfaction score, the most comprehensive measure we have because it covers the entire length of our customer relationship is on the rise. In the second quarter, our dollar churn was significantly lower than the last few quarters. And while I would like to link the two, it is too early in my opinion to do so, as I believe there is a lag effect from improvements in client satisfaction to dollar churn performance. However, I do believe continued improvement in client satisfaction will translate into improved dollar churn in the second half of this year. Earlier this year, we stated that our core ratings and reviews business was under pricing pressure, primarily among our brand customers. We continue to see this phenomenon play out due to competitors using price as their differentiator. There are a number of initiatives we have put into place to offset the pressure in our core ratings and review business. First and foremost, as I stated earlier, we are steadfastly focused on client satisfaction. I believe price to value stability begins with happy clients and we have more work to do in this area despite good progress. Next, we have reignited the innovation engine of the company and have launched a number of consumer-generated content products and services designed to complement our core ratings and review business. For the third quarter in a row, over 25% of our product bookings came from these new products, which is helping to offset some of the pricing pressure in our core business. In the second quarter, curations and sampling did quite well, but BV Local and Spotlights did not have strong quarters. BV Local remains very lumpy and has had a slow start in 2016, but should strengthen in the second half. Spotlights, our newest offering, also was slow in Q2, but I am encouraged that we have had two important retail wins at Wal-Mart and Home Depot and have a good pipeline, which should produce stronger bookings going forward. Selling and positioning all of our offerings and services remains an opportunity as we head into the second half of this year. Bookings for the company in the second quarter, was again mixed. I realized the term mix has been used often to describe our sales performance, but I do think the trend is slowly heading in the right direction. Europe had its best overall performance across all of our major metrics bookings, launches and churn since I have been with the company. However, in North America, bookings were soft after a solid first quarter. The demand for our offerings remains good overall, but we have clearly seen a decline in average deal sizes and fewer large opportunities. In the second quarter, average deal sizes dropped 15% from a year ago and we only closed two large deals. That being said, our large deal pipeline is much stronger entering the third quarter. Now, let me comment on our Asia-Pacific business, where we have offices in Sydney and Singapore. Recently, we made a decision to suspend our sales operations in the region, but we will continue to service and support all clients in the region with a smaller team. Revenues from the region represent less than 3% of our total and the markets we serve were not compelling investments for our growth plans moving forward. I am pleased to announce that Liz Ritzcovan will be joining us next week as our Chief Revenue Officer. Liz brings significant sales and advertising leadership experience from Yahoo!, Parade Media Group and Time. Most recently, she was the CRO for Seismic. Liz brings strong sales leadership and digital marketing domain expertise to our team and will be instrumental in helping us improve our overall sales performance while also championing some of our new initiatives, specifically shopper advertising. Thus far, our biggest disappointment this year has been the poor performance of our advertising business. In Q2, revenues grew only 6% year-over-year far lower than our expectations. The core of our current advertising business is site monetization via online advertising by our retail partners. Entering this year, we had some momentum with a new large retail relationship, new sales resources that we thought would add to productivity and the early excitement of our shopper advertising initiative. Midway through the year, our programmatic business, which is generally responsible for placing ads and retail inventory, was flat despite increased inventory to fill. Our direct sales team did not produce at the levels we expected and shopper advertising while still a unique and important initiative is not where we thought it would be timing wise from a go to market standpoint. As a result, we are lowering our second half expectations for our advertising business and our full year revenue guidance, which Jim will discuss in more detail. Despite being behind schedule, our shopper advertising offering is a unique and differentiated opportunity, which allows our customers to target end market shoppers. The power of shopper advertising is based on our large network where during Black Friday alone, over 100 million shoppers, up nearly 20% over last year engaged with reviews or other types of content. We capture their activity, like reading or creating a review or viewing photos from the curations gallery and create shopper specific segments. Our brands or retail customers can then create specific campaigns to a segment of shoppers as they shop online or into a store. We have sold nearly $500,000 in net revenue of shopper advertising mostly in the form of trials. And just recently, we have started to see repeat purchases at higher levels. For example, one retailer spent $30,000 on Columbus Day for a trial campaign. Their results were so strong that we are now running a similar campaign for $90,000 in December and are in discussions for yet another one early next year. As we continue to amass more shopper data and construct more segments, we believe shopper advertising will provide even stronger revenue. Shopper advertising is an important component in our strategy of delivering more value to brands and retailers and enhancing our long-term revenue growth rate. In summary, our focus remains on returning the company to healthy growth and on continuing to improve our EBITDA and cash flow. We continue to invest in client satisfaction and new innovation to provide a strong core business foundation while tapping new opportunities for growth. We believe the market for our products and services remains good. Our innovation engine is strong and the overall future for Bazaarvoice is bright. Thank you for your continued support. And I will now turn the call over to Jim.

Thank you, Gene and thank you to everyone that joined the call today. Today, we are reporting results for our second quarter of fiscal 2016 ending October 31, 2015. For the second quarter, we achieved total revenue of $49.9 million, up 5% year-over-year and slightly above our guidance range. We achieved SaaS revenue of $47.6 million, up 5% year-over-year. Advertising revenue for the quarter was $2.3 million, up only 6% year-over-year. We achieved positive adjusted EBITDA of $1.1 million, a significant improvement from a loss of $1.8 million in the second quarter of last year, as we continue to drive towards expected positive adjusted EBITDA for the full fiscal year 2016. This was significantly better than anticipated and largely the result of continued leverage from efficiencies in our SaaS, sales and marketing activities, as well as a favorable adjustment to our corporate bonus expense. Excluding the impact of that favorable adjustment, our adjusted EBITDA for the quarter would have been approximately breakeven. We also achieved positive cash flow from operations in Q2 of $13.6 million. Clearly, our best quarter ever, fueled by significantly improved quote to cash processes and by record collections. Our non-GAAP EPS for the second quarter was zero. Client launches increased nicely on a sequential basis in Q2 to 103. Looking forward, note that launches tend to be sequentially lower in Q3 as many of our clients did not make changes to their websites during the holiday shopping season. In Q2, we lost 80 clients, which translates to a client retention rate of 94%. Note that more than half of these client losses represented just 11% of our dollar churn in Q2. We ended the quarter with 1,360 active clients, up 9% from a year ago. Annualized SaaS revenue per average active client in the second quarter was $141,000, up $1,000 from Q1. With respect to advertising, as Gene noted our biggest disappointment this year has been lower than expected advertising revenue. As a result, we now expect our advertising revenue to grow in a 10% to 20% range for our full fiscal year 2016. Moving to our P&L, gross margins for the second quarter were 63.7% compared to 65.2% in Q2 of last year, as we increased investment in client retention, continued to incur a higher amortization of capitalized software from our innovation investments and is less than expected advertising revenue negatively impacted our gross margin this quarter. We believe our gross margins for the full fiscal year will be in the low to mid-60s. Sales and marketing expenses for the second quarter were $15.7 million or 31.4% of revenue as compared to $17.5 million or 36.9% in the same period last year. For the full fiscal year, we expect our sales and marketing expenses to be in the mid-30s as a percent of revenue. R&D expenses for the second quarter were $9.3 million, representing 18.5% of revenue as compared to $8.5 million or 18.1% in the same period last year. We continue to expect to grow our dollar investment in R&D for fiscal year 2016 as we continue to innovate and invest in new products and solutions, including shopper advertising, to drive growth. G&A expenses for the second quarter were $5.7 million or 11.5% of revenue, as compared to $6.6 million or 14% in the same period a year ago. We continue to gain leverage in G&A this fiscal year, including better bad debt expense performance. Annualized revenue per employee was $236,000 in the second quarter. We ended the quarter with 855 employees, which we expect will decrease in Q3 as we ramp down our headcount in APAC. Moving on to the balance sheet and cash flow, our DSOs improved significantly from Q1 to 69 days, our best DSO performance in 2 years, as we had record – a record collections quarter and as we also improved our receivables aging. We believe this performance is a function of improved customer satisfaction as well as improved quote to cash processes. Looking forward, note that our DSOs typically increased sequentially in Q3 of each year as we usually have a higher mix of annual billings in Q3 versus Q2 and as we have seasonally higher advertising billings, which are both done on gross basis. Our deferred revenue balance was $59.1 million at the end of Q2 compared to $54.9 million at the end of Q2 last year and $65.4 million at the end of Q1. Lower annual billings in Q2 versus Q1 contributed to the sequential decrease. As I have said on prior calls, measuring changes in deferred revenue is not a good proxy for bookings during the quarter as we typically have a varying mix of frequency with average upfront billings of less than 1 year. As I have noted earlier, we achieved positive cash flow from operations in Q2 of $13.6 million, clearly our best quarter ever. We also achieved positive free cash flow in Q2 of $6.2 million despite $4.3 million related to the build out of our new headquarters facility in Austin into which we are going to move next week. Total CapEx was $7.4 million in Q2, including the $4.3 million build-out and also including $2.5 million of capitalization of developed software as we continue innovation on our new products and solutions. For the full fiscal year 2016, we continue to expect both our operating and free cash flows to be significantly better than fiscal 2015 and we also expect operating cash flow to be positive, driven by improved adjusted EBITDA as well as improved working capital performance. Our balance sheet remained strong with $110 million in cash, cash equivalents and short-term investments as of October 31, 2015. The outstanding balance on our credit line remained in the same at $57 million. Now I would like to finish with our financial outlook, first with our full year guidance. As we now expect a lower advertising revenue growth rate of 10% to 20%, we are lowering our total company revenue guidance range for the full fiscal year 2016 from $202 million to $210 million to $197 million to $201 million, up 4% year-over-year at the midpoint of the range. We are maintaining our guidance for adjusted EBITDA to be in the range of breakeven to positive $2 million and non-GAAP net loss per share, we expect to be in the range of $0.11 to $0.15 based on $81 million weighted average shares outstanding. For the third quarter of fiscal 2016, we expect total revenue to be in the range of $49 million to $51 million. We expect adjusted EBITDA in Q3 to be in the positive range of $0.9 million to $1.9 million. Non-GAAP net loss per share is expected to be in the range of $0.02 to $0.04 based on 81.3 million weighted average shares outstanding. I would like to remind everyone that we will be presenting at the Credit Suisse Technology Conference in Scottsdale tomorrow. With that, operator, please turn the call over for questions.

[Operator Instructions] Our first question comes from the line of Scott Berg from Needham & Company. Please proceed with your question.

Hi, Gene and Jim. Congrats on the good quarter and thanks for taking my questions. Couple of quick ones. First of all, Gene, how about a little bit more color, if you can give us a little more color on the media business, specifically how do you get that moving from this point? You are obviously disappointed a little bit in the year-to-date performance and that there is a lot of moving parts into why that business didn’t perform in the second quarter, but how do you get that moving appropriately going forward?

Yes, Scott. Yes, obviously, we take lowering our revenue guidance very seriously and so we are disappointed that we are at that point here based primarily on our advertising performance. A little bit of history I guess is appropriate. Our Q4 advertising revenues grew over 80% and we had signed up a very large retail partner last year. And as I have spoken with the legacy, if you will, advertising business that the company bought a couple of years when we bought Longboard Media is selling advertising to retail partners, where we have I think over 20 retail partners. And so more retailers we sell, the more opportunity we have to sell more advertising. So, as we entered the year, we had some momentum with the new – a large retailer that was going to deliver a lot of additional impressions for advertising. Q1, we saw only a 24% growth, because that advertiser really started slowly with allowing advertisers to take place as well as we had a number of advertising relationships that got very particular on who can advertise on their site. And so our pricing decreased in the programmatic area as well. And I think we talked about that on the Q1 call. Basically, those trends continued into Q2. So, our programmatic revenue is significantly off and we are basically saying that we are going to not see that improve the rest of the year. Now, we do very much believe that advertising is an important part of the Bazaarvoice story and shopper advertising is our own innovation that we are bringing to the market using some of the technology that we have and knowledge we have acquired in the Longboard relationship, but bringing it to market using the power of our network. And so as we go forward, we really think this legacy business is going to continue to grow, let’s call it, at the rates we are currently forecasting, but that the opportunity for us and we think the significant opportunity is in shopper advertising. The shopper advertising plan is late simply because we are assembling all the pieces to make it successful and that assembly has taken us longer to get there. We, as many of you know, had no rights to shopper activity or shopper data in our network. A year ago, we had methodically gone into the network, worked with a number of our largest customers to get those rights and we now have tens of millions of shoppers that we have rights to actually begin targeting and assimilating their information. But those are contractual relationships meaning we have the contractual rights to gather that information on sites. Now, we have to technologically actually much those shoppers, get those individuals and then begin to really go after them with specific campaigns. So, this is all taking time. But we are seeing encouraging results. We have a number of organizations that have done trials, seen great results, are now coming back for more. But it’s not ramping at the pace that we thought it would be when we started back 6, 9 months ago. And so as we look at this year advertising, the legacy business is disappointing and the new business is late. And so we are just on our way. We think ‘17 is going to be a much more important year for shopper advertising. Bringing Liz on board as our CRO really strengthens our bench in the advertising arena to complement some of the stuff we are doing in the SaaS world. And so I look forward to her leadership in helping us really refine the right go-to-market model as well going forward. So, sorry for the long answer to your short question, but it’s a fairly involved topic and it’s obviously a very important one given our call today.

Sure, fair enough. And my final question would be around the guidance for either Gene or Jim, if you take a look at the midpoints from the prior guidance and the new guidance and you back out the amount that you are reducing on the media business? It looks like that business is being guided slightly lower for the year by I am driving in my head we will call it $2 million roughly. I hope that’s the accurate number, but trying to understand what’s going on from the sales perspective, is it just the softer North America quarter, is there something else that’s causing you to reduce the SaaS growth nominee for the year?

Yes, I mean, I think the way to look at the SaaS business is we continue to look, we continue to see client stabilization. I am very encouraged by the survey results we are getting on overall satisfaction. A ton of hard work has been put into that whole process. I think it’s going to reflect an improved churn going forward. And churn is going to be a big part of our growth rate as we talked about – as we have always talked about. The mix in sales is really the – what you are seeing on the slight decrease in revenues for the SaaS business. And you are right, your $2 million number is right around the right ballpark there, Scott. I am not unhappy with that. I mean, given that we have been through a lot and we are feeling obviously the lag effects of significantly higher churn over the last three quarters, you feel that ripple through your P&L for a couple of quarters. So, I am not unhappy with that. I generally think we are going in the right direction. So, I think where we are from a SaaS perspective is we are slightly off. All things being equal, we wouldn’t be changing guidance based on our SaaS business, but we are doing it primarily because of our advertising situation.

Great. That’s all I have. Thanks for taking my questions.

Thank you.

Our next question comes from the line of Jeff Houston from Northland Capital Markets. Please proceed with your question.

Hey, guys. Thanks for taking my questions. It was great to see the new products to represent about 25% of new bookings. Could you talk a bit about which products outperformed in the quarter to offset the underperforming ad revenue? You mentioned somewhat of European bookings being strong, but a little more color will be great.

Yes. To be honest, the new products that did well are our lower dollar value products, which are curations and sampling. Curations has continued to have consistency in its bookings performance since we introduced it about 18 months ago, but it’s dollar value as an overall add-on product is not as high as say a BV Local or Spotlights. So, both curations and sampling have done well in Q2. BV Local is a large opportunity, because it’s generally taking on some sizable projects in helping organizations manage their overall customer experience in a service arena or distributor relationships and that pipeline is building fairly well for the second half. And we really think Spotlights is a great opportunity for us. Spotlights was launched in July, had some initial early wins as I mentioned, Walmart, Home Depot, which are the kind of accounts that anchor our new product success. But it then went into a little bit of a lull because a lot of our organizations started quote freezing in early October for the holiday season. So we expect Spotlights to have a good performance beginning in the January timeframe if the pipeline is any indication.

Got it. And then could you talk about – I think last quarter you provided some information about the percent of contract dollars that are still at risk from the PowerReviews settlement with the Department of Justice, I think it’s 25% last quarter, could you update that percentage and talk a bit about maybe the 80 clients that you lost this quarter, how many of those went to PowerReviews?

Yes. Jeff, this is Jim. Last quarter, we did say about a quarter of our SaaS base is still subject to stipulation. This quarter, at the end of Q2, less than 20% and that should ramp down 4 points to 5 points on a quarterly basis going forward. So and from a – we did lose 80 clients, over half of those represented just 11% of our total dollar churn. So a number of those were clearly smaller value annual subscription fee clients. We have been from a loss of clients to PowerReviews, it’s been relatively consistent on a quarterly basis of approximately 1% of our base per quarter that of clients, most of those relatively small.

Got it. Thank you.

Next question comes from the line of Stan Zlotsky from Morgan Stanley. Please proceed with your question.

Hi guys. Thank you so much for taking my questions. Maybe just to continue with the churn line in questioning, is there something specific that you saw on the SaaS side of the business as far as churn is concerned that prompted you to take down the SaaS guidance for the full year down a little bit?

No. Stan, I think churn is running about as expected to be honest with you. And I think the trend line in churn is moving in a positive direction overall. The thing to note about churn is about we – as we have some price pressure, we are thoughtfully working with our clients on rightsizing where we think it’s appropriate and where we feel some pricing pressure. But in return, we are signing our customers up to much longer contracts, say 2 years or 3 years. This is a company that has brought on annual contracts. And we think that’s going to offer additional stability in the out quarters around our overall revenue to build a much stronger base to grow form. But the down, the slide down guidance in SaaS is really a result of bookings. But again, bookings transactions are pretty healthy. They are similar to many – to past quarters. What we are seeing is deal sizes are down a little bit. And I think deal sizes are down mostly because we are missing large deals. Our large deal volume was significantly less in the first half of this year than it was in the second half of last – or first half of last year, I should say. As I look to Q3, the pipeline for large deals is much stronger. And so I expect that to change in Q3. I think deal sizes will probably tick up from Q2. But that’s the reason right now that we are down a little bit is because bookings have – had good transactions, deal sizes have been less than we thought.

Got it, that’s very helpful. And going back to the 25% of booking that’s coming from new products that you saw in the quarter, how have the overall bookings been growing or maybe rather quantitatively or qualitatively some detail on that just to give us a sense for how much that part of the business is actually growing?

On the new product themselves?

Yes.

We don’t – I don’t think we actually don’t break that out. You can imagine now that a year ago we had half as many new products as we do now. So the overall trends for new products has been generally a good direction, but we don’t break that out specifically.

Yes. And we talk about new products as a percent of total.

As a percent of total.

But we don’t talk about total bookings in an absolute dollar sense.

Right. So what I was trying to get a sense for is our total bookings growing start of in line with this kind of low single-digit pace of revenue growth or bookings growing significantly faster than the revenue base?

The combination of bookings and churn are supporting the current kind of single-digit revenue growth you see going on right now. So that’s what I was saying. Churn is getting better overall. And so we – we are hopeful that as we head into ‘17, the overall growth rate of the business begins to move higher from SaaS. Go ahead.

Perfect. Thank you. And the last question for me, it’s great to see that you guys brought on a new Chief Revenue Officer, what are Liz’s strategic initiatives over the next three months to six months as she ramps on the job? Thank you.

Yes. Well, I think first and foremost, we have talked a lot about our sales execution being consistent. So my number one priority for Liz is making sure that we are much more consistent from an overall performance standpoint. We have work to do in that area. We have made a lot of progress, but we still have work to do. I think the second thing is we believe that our future is a SaaS business that has a strong complement of advertising. And that going to market in a way that is consistent with those two offerings is very important. We have had two sales forces since I have been here an advertising sales force and a SaaS sales force. That’s really a bad way overall, an inefficient way to go to market and Liz is a kind of person that has both platform experience, which is very close to SaaS, but also lot of advertising experience that can really think through the right way to go to market in a cohesive way and provide the full set of our offers. So those are kind of the two that I would bucket for.

Perfect. Thank you very much guys.

Our next question comes from line of Ilya Grozovsky from National Securities. Please proceed with your question.

Thanks. So just on the new products, just to continue the conversation on that, do you guys, 25% of bookings new product and that sort of has been consistent for a couple of quarters now if I look back in my notes, do you think that that kind of how do you think that goes forward as far as percentage of bookings on the new products?

Well, to forecast that is a little dangerous. I can tell you that our aspirations are for to be much higher. We think there is an opportunity to take that number higher. So we would like to see that happen. But to give you the immediate – how do I think that breaks out over the next couple of quarters is probably not a good idea for me right now. But I think that – when you look at BV Local and Spotlights that have had weaker quarter – weaker first half, they should provide upside to that number as we head into the second half.

Okay. And also as the sales force incentivize any differently to sell the new products versus the base or is that the same compensation for them either way?

The sales force is compensated and recognized for all SaaS products in an equal fashion. But one thing we have done recently is we have incentivized, as I just finished saying we have two sales force on our advertising and our SaaS team in lieu of actually merging new organizations into a much better go to market strategy while I was trying to hire our CRO. I did provide incentives for the SaaS team to begin to introduce our shopper advertising opportunity to a number of the brands in the business that we felt like we had the right amount of data to make them successful. And that’s gone fairly well, I mean I think our SaaS team has been excited to see that many of the early shopper advertising opportunities have much shorter sales cycles and have been excited to see also some of the early results that we have got.

Okay, great. And then just lastly just housekeeping, so the fourth quarter, fourth fiscal quarter revenues usually steps down sequentially, do you think that will play out again?

Yes, this is Jim. It is typical as our fourth quarter total company revenues do come down, because the seasonal nature of advertising is usually higher in Q3 because of the holidays. So, that is still a potential this year as well. The shopper advertising part of our business which is still nascent, still very early revenue stages to the extent that, that could ramp in Q4 that might help offset that, but that’s a TBD at this point, it’s still early.

Okay, great. Thanks a lot.

Our next question comes from the line of Kevin Liu from B. Riley. Please proceed with your question.

Hi, good afternoon. Just first question for me. On the improvement in the European bookings, can you just talk a little bit about whether that was a function of closing some of the opportunities that headed in secured earlier in the year or if you are seeing a combination of improved sales execution as well as more pipeline growth that should sustain that improvement going forward?

Yes, Kevin, I think the best answer to that is all of the above. We are markedly more encouraged by the European team’s performance than six months or certainly a year ago. We have seen solid performance. We have always had a decent UK team in UK operations, but starting to see more consistent performance in the continent as well, which is very encouraging. So, it’s at a point now where I think we are – close opportunity again for the company. We are mostly trying to fix the operation and get execution straight. Now, we think we are feeling better about the opportunity to start looking at more growth opportunity there.

Great. And just from the software advertising business. As a follow-up, you mentioned earlier that it started off a little bit slower than you like to see where it’s not likely you wanted to be. What’s kind of holding back that business at this stage? Is it a technology thing? Is it more so just from kind of a sales standpoint? Anything that you offer can be helpful?

Yes. The simple answer is acquiring the pool of data required, so that we have can build segments of known in-market shoppers. Again, it’s kind of a two-step process. Step one is acquiring data right contractually, which is going into our MSAs and rewriting them and presenting the customers and getting them to buy off of that. That gives us the right to acquire information about their shoppers, but then we have to technologically deploy tags, etcetera, on those individual so that we have them and can begin to monitor their activity and begin to determine what interest they have, what products they might be shopping for so that we can say here is a pool of individuals interested in pet food and who will be interested in talking to people that have looked at dog food in the last two weeks from a content standpoint. So, it’s been a multi-step process. We thought that multi-step process would go faster. It has actually taken us some time to get there. But I can tell you that the amount of data we have contractually gotten has grown significantly and the amount of targetable individuals has grown significantly as well in just the first six months, but we remain very excited about where we think it can go.

Great. Thanks for taking the questions.

[Operator Instructions] And our next question comes from the line of Brendan Barnicle from Pacific Crest Securities. Please proceed with your question.

Thanks so much. Jim, I wanted to follow-up on that strong cash flow that you guys put out. It’s much better than any of us were expecting and you are guiding to continue to look good. You mentioned some things on in your prepared comments about collections. But I was wondering if you can give us any more color on why such a dramatic change and that continued improvement you are looking for through the remainder of the year?

Yes. I think the fundamental part of it is we have been working as a company for a number of quarters on improving our sea set. And as Gene noted in his comments, those metrics are going in the right direction. We also, a number of quarters ago, began programs and projects inside the company and having our, what we call, quote to cash processes in the company just work better and more effective and more efficient. Those are the two main fundamentals that we did from having our balance sheet work better basically our cash flow work better. The other thing we did is I did – we did increase the capacity just in our collectors. And we have got a little bit behind there and we increased that capacity. And you put that combination together and we had – by the way, we had a good Q1 in terms of annual billings, which the billings were a little higher in Q1 than they typically are from a mix standpoint. You put that all together in Q2, we just had a bang up quarter in collections and which showed up in the cash flow for us. Now, on a go-forward basis, those fundamentals we have put in place are clearly still there. And now we think we have more to go. So, we think – our DSOs came down to 69, which is a really good number. We had record collections. And so we have – we are fairly bullish on that going forward. Now that said Q3 we all know DSOs typically go up, because we have much higher percentage of typically a higher percentage of annual billings and we have higher advertising revenues which are booked to gross. And on the revenue net, so just mechanically, deals are going to be higher. But all that said, we think the trend lines from that standpoint in general are in the right direction. And we expect for the year, like I said, positive cash, operating cash flow for the year, major improvement from last year and again that’s also driven by EBITDA better year-over-year as well.

Great. Thanks for that additional color. Gene, great hire with Liz, but I was also curious how overall employee retention has been given all that changes that have been going on at the company?

Brendan, employee retention overall has been ahead of plan. Sales retention for the year is ahead of plan or ahead of last year for sure. And so again generally speaking, I feel reasonably good about where we are at. We certainly, to your point, we are putting the company to our transformation. And so I feel like – but we have spent an inordinate amount of time with the internal team getting by in setting a clear direction, putting the bits together, adding Liz to the team, adding additional capacity in our product teams. So, we have really worked hard at trying to get a bench in place to kind of set our future direction.

And Gene, you have been really clear that this transformation is highly dependent on sort of this new product strategy. And as you mentioned some of the products are doing better than others. Are there other new products you have in the pipeline that we might see that you are looking to launch either later this fiscal year or as we think about ‘17?

Yes, we have one underway in the SaaS side of the business that we are trying to really drive additional penetration in our network. And as you all know, we have been talking about Brand Invite for many calls. We haven’t talked about today, but Brand Invite is the notion of retailers who constantly want more and more content working with us to sign up more brands to begin to respond to negative reviews or answer questions. We would like to – and we have talked about converting those individuals to paying customers hasn’t gone as well as we would like. And so we are trying to look at how Brand Invite can grow as an opportunity, add more functionality that give us the ability to sell more, to sell more to the brand and still solve the problem for retailers getting more content. We will have more to talk about it probably in a couple of calls, but we think it’s a significant opportunity in the SaaS world it’s not just not something that we are ready to unveil just yet, but we are continuing to look at ways to increase and improve the business both on the SaaS and advertising front.

Great. Thanks guys.

It appears there is no further questions at this time. Mr. Austin, would you like to make any closing remarks?

No, I thank you all for your attendance. We appreciate the continued support and look forward to meeting with all of you down the road in 90 days. Thanks.

This concludes today’s conference. Thank you and you may disconnect your lines at this time.