Greetings, and welcome to the Bazaarvoice, Inc. Second Quarter Fiscal 2017 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Linda Wells, Director of Investor Relations. Thank you. Please begin.

Good afternoon, and welcome to today's conference call to discuss Bazaarvoice's financial results for the fiscal second quarter of 2017 ending October 31, 2016. I'm joined today by Gene Austin, Chief Executive Officer and Jim Offerdahl, Chief Financial Officer. Following the prepared remarks we'll have a question-and-answer session. Please note that we are simultaneously webcasting this call on our Investor Relations Web site at investors.bazaarvoice.com. The earnings release with our results for the second quarter of fiscal 2017 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 October 30, 2016 filed with the SEC on June 20, 2016. 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. Some of the numbers that we will discuss during today's 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 each non-GAAP measure and its corresponding measure GAAP measure. Please note that we are unable to reconcile any forward-looking non-GAAP financial measures that their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In particular, we cannot reliably estimate our future stock-based expense, which is dependent on future stock price, and we expect our future stock-based expense to have a significant impact on our future GAAP financial results. With that, I'll turn the call over to Gene.

Thank you, Linda, and thank you all for joining the call today. The second quarter was another good quarter for Bazaarvoice, improving dollar churn and consistent sales execution gives us confidence that our SaaS business is on the right path for higher growth in fiscal 2018. We achieved revenue of $50.4 million in the range of our guidance, and adjusted EBITDA of $5.2 million above our guidance, and a significant improvement from the same period a year ago. We also delivered our fifth straight quarter of positive operating cash flow as we continue to improve the margin profile of the business. While our SaaS business continues to strengthen, our shopper advertising results were softer than expected as we continue to build this business, which I will provide more details on in a few minutes. The transformation of our business from a ratings and reviews platform provider to a company that is creating the world's smartest shopper network is well underway. We continue to build upon our three key assets, which include our core CGC expertise, our network of over 5,000 brand and retail Web sites, and our shopper data, that currently stands at 170 million targetable shoppers in the United States, an increase of 30 million since our last earnings call. I am pleased with the continued strengthening of the fundamentals in our core SaaS business that focus on our CGC solutions. Our dollar retention rate is improving, which is a strong foundation upon which to drive value and long-term growth. For the second quarter in a row, net bookings, or the difference in gross bookings and dollar churn, were better than our internal expectations and higher than the same period a year ago. For this fiscal year, we are maintaining our revenue guidance as strengthening SaaS fundamentals are being…

Thank you, Gene, and thank you again to everyone who joined our call. Today we're reporting results for our second quarter of fiscal 2017, ending October 31, 2016. For the second quarter, we achieved total revenue of $50.4 million, up 1% year-over-year and within our guidance range. We achieved SaaS revenue of $48.1 million, up 1% year-over-year, and advertising revenue of $2.3 million. We achieved positive EBITDA of $5.2 million above our guidance range, and a significant improvement from $3.1 million in the second quarter of last year, and we achieved cash flow from operations of $1.6 million positive for the fifth quarter in a row. Our GAAP loss per share for the quarter was $0.05. Our non-GAAP earnings per share was $0.02, better than our guidance of a loss of $0 to $0.02. We launched 82 clients in the second quarter, and ended the quarter with 1,412 active clients, up 4% from a year ago. Note that for Q3, launches tend to be sequentially lower as many of our clients do not make changes to the Web sites during the holiday shopping season. Annualized SaaS revenue per average active client in the second quarter was $137,000, consistent with Q1. Our client retention rate was again 95.2%, which equates to a client churn rate of 4.8% for the quarter. As Gene mentioned, our dollar churn rate for the quarter was the best since Q3 of fiscal 2014, and also note it was better than our client churn rate for the third quarter in a row. While we have given qualitative commentary around dollar churn rates in the past, we've decided to start providing more quantitative information as well. First our definition, we calculate our dollar churn rate as any loss of Annual Subscription Fees or ASF during the year divided…

Thank you. We will now be conducting a question-and–answer session. [Operator Instructions] Our first question comes from the line of Kevin Liu with B. Riley. Please proceed.

Hi, good afternoon. Just in terms of the advertising business, I wanted to clarify whether you implied that revenues thus far in the quarter have already exceeded last quarter, if you just meant on a quarter-to-date basis you're above where you were at the same point in time in Q2?

Yes, good clarification, Kevin. In Q3, our advertising revenues have surpassed all of last quarter.

Got it. And with that in mind, I guess, the typically seasonality would have Q3 as being kind of the strongest for the advertising business. Obviously there's some catch-up that needs to happen in the second half to get to your guidance. So just curious whether you see momentum building on top of this kind of current holiday season, what gives you confidence that you'll be able to drive such strong performance in the back half?

The main reason is we're definitely starting to see a firming of pipeline, both in Q3, but also in Q4. I talked about in the call the fact that we have been slower than we thought in ramping sales people. And we should have a full complement of sales both -- we have a large majority of the sales folks online in Q3, and a full complement in Q4. So we still believe that our guidance of 25% to 35% revenue growth for advertising is still on.

Got it. And just in terms of the adjusted EBITDA guidance for the third quarter, obviously steps down a little bit from where you finished out the second quarter. Was there something unusual that drove the second quarter as high as it was, or if maybe you can just talk about some of the puts and takes that drove that outlook?

Yes, Kevin, this is Jim. Yes, in Q2 we didn't have as much advertising revenue as we expected, which impacted advertising commissions. Now, in Q3, obviously we expect more commissions because we expect more revenue. And also we expect bookings to pick up on the SaaS side, which they typically do in the second half, which will generate more commissions. We're also, I think -- our hiring was a little bit slower than we wanted to in the first half, and we expect that to pick up a little bit in the second half.

Great. Thanks for taking the questions.

Thank you. Our next question comes from the line of Stan Zlotsky with Morgan Stanley. Please proceed.

Hi guys. Good afternoon and thank you very much for taking my question. So maybe just continuing with the advertising business, so thus far quarter-to-date you've already surpassed the $2.3 million that you did in Q2. And yet we still have essentially all of December holiday season. So how excited should we get about the advertising business for Q3? And then I have a quick follow-up?

Stan, it's definitely building, and I think we expect the second half of our advertising business to be considerably stronger than the first half. The holiday season is a little tricky in that you definitely run into an end of the holiday season in December, and then January, which is part of our Q3 we'll get some more advertising. And then it'll come back a little bit more in our fourth quarter. So I'm not ready to beat the drum loudly that we've completely turned the corner on advertising. But let me just say, our reps are in place. They're ramping reasonably well. And we believe that the second half is going to be considerably stronger than the first half, and that's why we're maintaining our 25% to 35% guidance on overall advertising. We're signing up a lot of new clients. We've seen good -- still good repeat business. The performance of our campaigns is still healthy. So overall there's room for optimism. We definitely -- we're disappointed with the Q2 result. We thought we would do more, but we haven't ramped it quite as fast as we thought at the beginning of the year, but still very bullish on the overall opportunity.

Okay, great. And then you mentioned on gross bookings that you expect gross bookings to be up this year, and I think that makes sense. And I just want to confirm that, is your expectation also that net bookings will be up this year versus last year. And given the commentary that you mentioned on improving churn rates, I would expect that to be the case, but just want to confirm?

Right. No, we expect net bookings to be considerably stronger in '17 versus 2016. We're at the middle of the year, and let me just take a step back and kind of give everybody some perspective on the SaaS business. When we finished the second quarter of last year, I think we came in at around a 4% revenue growth rate overall. But when we were in that discussion, you could look at the fundamentals of our SaaS business, and you could definitely tell that growth rates were heading downward because of very elevated churn, still sales productivity and overall sales performance needing to improve in the price reducing environment, where demand was not as strong. And so you had all the fundamentals that said, yes, we grew at 4%, but we've still got work to do to get the SaaS business, the nose of the airplane heading in the right direction. Now, we're here talking about 1% revenue growth rate in SaaS, but all of the fundamentals point to higher numbers. We have better sales productivity in a price-stabilized environment. We have stronger client retention and dollar retention. We said 250 basis points that is effectively 13% improvement dollar-wise. Now, if you all remember, in Q1, we said that number was 10%. So we've actually improved on that to 13%. We could go higher as the year unfolds, so a good overall client retention environment driving great net bookings -- great net bookings improvement. So we are definitely at a slow revenue growth rate, but all the fundamentals point to the nose of the airplane, our SaaS business going in the right direction, and we hope to have more commentary on that as we look to '18 in our next call.

Okay, very helpful. Thank you, guys.

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed.

Yes, great. Thanks. So just I guess one more on the ad business. I mean, does the strength so far this quarter -- I mean, if it continues it sort of implies that you're thinking the SaaS business would be down sequentially given just the guidance is somewhat flat sequentially, I guess, how are you thinking about SaaS business?

This is Jim. Yes, SaaS will likely come down sequentially, okay, in Q3, primarily because of foreign exchange, we're running in some pretty strong foreign exchange headwinds as we all know just in the last 90 days the dollars strengthened 5% versus the pound and also versus the euro. So we're definitely running into that in the second half of this year.

Okay, that makes sense. And then I think last quarter you gave an advertising customer renewal rate, neither the sequential change, do you have any updated numbers or comments on that?

I think you are referring to clients have come back for additional campaigns that rate, consistent with the number we gave in Q1, which I think was around 55%, somewhere in that range.

Okay, got it. And then just speaking about this third quarter in terms of the SaaS business; has the bookings for SaaS typically pretty linear throughout the quarter, or do you tend to have a bigger January from a bookings perspective?

Our bookings typically are stair step. They go from the low point of Q1 towards the highest in Q4. And so, you can imagine when we talk about our net bookings growth, most of it's going to be in the second half because we expect sales to be higher and churn to keep trending in the right direction, and so that gap gets wider in the second half of the year, which produces incremental growth in '18.

And within the quarter, our bookings typically stair step as well, where the third month is -- usually a majority of bookings is in the third month of the quarter.

Even during this kind of holiday season, Gene?

Yes.

Okay. Thanks a lot.

[Operator Instructions] Thank you. Our next question comes from the line of Ilya Grozovsky. Please proceed.

Thanks. My question was asked and answered. Thank you.

Thank you. We do have a follow-up question from the line of Mike Latimore with Northland Capital Markets. Please proceed.

Great. You mentioned -- I think you mentioned that professional service you expect that to kind of grow over time here, roughly what percent of revenue is professional service?

Yes. Mike, this is Jim. It's pretty small. We don't separate that out obviously on our financials as part of our SaaS revenue because this typically has been recognized over life of contract but post initial contract we get consulting services and we're getting more of that, then that's recognized as we deliver. So we do expect those bookings of professional service move-outs so we do expect revenue to move up but it's a pretty small number at this point.

And then in terms of the ad customers you have or that are in the pipeline, most of those kind of current customers that you're up selling advertising too, or is there a majority on new logos or how does the pipeline look there?

The majority of our advertising business is coming from our brands and retailers from the SaaS side. There are a few exceptions but that we have a natural entrée into the account using different part of the business but it's not that - there is still work to do there, but we have - we have the ability to walk in and talk about our story just to another side of the business. So, our share of wallet inside each of our brands and retailers we have a real opportunity with the recommendations product later this year for retailers and our shopper advertising business for brands and retailers. We have an opportunity to really expand our share of wallet inside these large organizations.

Thanks.

Thank you. We have reached the conclusion of our Q&A session. I would like to hand the floor back over to Mr. Austin for closing remarks.

Thank you all very much. We look forward to reporting our Q3 earnings to you in 90 days. Thanks again.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.