BrightView Holdings, Inc. (BV) Q4 2017 Earnings Report, Transcript and Summary

Greetings, and welcome to the Bazaarvoice Fourth Quarter 2017 Earnings Conference Call. At this time all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. Now I like to turn the conference over to your hosts 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 fourth fiscal quarter and full-year ending April 30, 2017. 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 website at investors.bazaarvoice.com. The earnings release with our results for the fourth quarter and 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 executions, 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, 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, and our annual reports on Form 10-K, and other filings that we may make with 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. Finally, some of the numbers that we have discussed 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 each non-GAAP measure and its corresponding GAAP measure. Please note that we are unable to reconcile any forward-looking non-GAAP financial measures to 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 our future stock price, and we expect our future stock-based expense to have a significant impact on our future GAAP financial results. I will now turn the call over to Gene.

Thank you, Linda, and thank you all for joining the call today. We ended fiscal 2017 with our strongest quarter of the year. Gross bookings were our best in eight quarters, up 6% year-over-year and we delivered another strong improvement in dollar churn. Advertising revenue grew 46% versus a year ago, also our best growth rate of the year. Before I comment more broadly, let me outline the specifics for the fourth quarter. Revenue of $50.2 million was within our guidance range, and adjusted EBITDA of $2.3 million was at the high-end of our guidance range. Operating cash flow of $14.2 million and free cash flow of $12.1 million were the best in our public company history. I am pleased with the significant progress we have achieved in our core SaaS business over the last 12 months. Investments we made two years ago in client engagement, products and services, and in our network are paying off in a very tangible manner. Client satisfaction as measured by net promoter scores has been on the rise all year. Our dollar churn rate improved by over 500 basis points in fiscal 2017, a remarkable achievement. And finally, the flow of content on our network grew at a record rate of 60% year-over-year with over $519 million displayable reviews. Distributing the right content of reviews and pictures along with questions and answers to the right places is the lifeblood of our clients’ digital presence, and in 2017 our network delivered. For the first time in many years, we over-achieved our internal expectations for net bookings for the fiscal year, which is defined as gross bookings less dollar churn. As we have discussed, net bookings is the primary economic driver of our SaaS business and growing that bookings remains our most important objective. While dollar churn improvements lead the way to our net bookings success, North America performed well in terms of sales execution. Europe had a nice rebound in the fourth quarter, but finished behind our expectations for the year. For the full-year 2017, gross bookings finished the year slightly down from the prior year. However, I am pleased overall with our SaaS performance in 2017 and believe we are building momentum heading into 2018. In addition to strong net bookings growth, we also took large strides in our income statement and balance sheet performance over the course of the year. Our adjusted EBITDA grew to $16.7 million for the year, up over 80%; and for the first time in our history, Bazaarvoice produced positive free cash flow for our fiscal year. Jim will cover the details in his section shortly. I was quite pleased with our continued increases in sales productivity and client acquisition during 2017. The total number of active clients grew by 7% during the year and our sales productivity increased by 15%. I attribute these increases to price stability and our core reviews business, as well as strong interest in services, especially Sampling. Recall that we launched Sampling over a year ago as a SaaS product offering. After tepid demand, we stepped back and packaged the product and related services into one offering and now delivered as a complete solution in the form of a managed service. Customers have embraced this offering and demand so far has been very good. We are excited to see what our new Sampling offering can produce in terms of bookings for 2018. While we achieved tangible progress in our core business, we made less progress than we expected on taking advantage of our large shopper profile network. That said, we do remain optimistic about the opportunity to provide new solutions and revenue streams based on the uniqueness of our data. Let me give you an update on both our advertising and personalization initiatives. As we enter 2017, we had just achieved critical mass of targetable shoppers for our advertising initiative. While we have achieved strong campaign results along with very good repeat customer and low cancellation rates, we have faced market awareness challenges, longer than anticipated sales cycles, and inconsistent sales performance. Advertising growth of 23% in fiscal 2017 was a solid improvement from the prior year, but well below the high-growth potential we had been investing for. So during Q4, we chose to reduce our investment in advertising sales reps in other advertising resources. Once we gain more market awareness and improve our sales consistency and productivity, we will add back resources commensurate with visibility into higher revenue growth. The other initiative fuelled by our shopper data is personalization. In the second half of fiscal 2017, we ran a number of pilots for a recommendation engine with several retailers. The pilot results have been clear. Retailers believe our data can be pivotal in their personalization initiatives, but they do not want it in the form of a recommendations product offering. We are now piloting direct access to our shopper data that can further inform retailers installed personalization platforms, which we believe may be a better way to monetize our data. We should have more news on these pilots in future calls. In summary, we do remain convinced that our shopper data represents a significant opportunity and we will continue in our efforts to bring it to fruition. As we head into a new year we have set some key initiatives to expand our brand footprint and better serve our retail clients. Capturing more brand clients remains compelling and it is our primary opportunity to grow our SaaS revenue. Our plan is to provide an offering that this tailored specifically to maximize a brands digital presence with consumer-generated content in the retail channel. We believe over 60% of brands ranging in size from multibillion-dollar global brands to small businesses have little to no e-commerce capabilities of their own and depends solely on the retail channel for their e-commerce presence and sales. In a few weeks, we will launch BRAND EDGE, our answer to maximizing their effectiveness in the digital retail channel. With BRAND EDGE we can help a brand identify their advocates, collect content from them, and then use the power of the Bazaarvoice network to distribute that content to product pages of their retail partners. Nowhere is this capability more important than when a brand is launching a new product. Brands spend billions of dollars annually on product launches and having the right content on the retailer page at the time of launch is critical for success. BRAND EDGE combined with our Sampling services ensures that content is front and center with consumers, which we know drives higher sales. Already we have over 100 brands from small and medium companies on BRAND EDGE from our early sales campaigns in the last six months. We are excited to get BRAND EDGE officially in market with its launch later this month. Growing and retaining our key retailers on the network is another key focus in FY 2018. For our retail clients the core of our value proposition is content on the product page. We are extremely proud of the progress we have made in growing the overall amount of content in our network by 60% over the past year. Going forward, our focus turns to expanding the breadth of that content across more products, what we refer to as content coverage. The successful launch of BRAND EDGE will add more ratings and review content for our retailers, while other innovations like Curations 3, which was released earlier this year are designed to add more visual content. Our retail clients will also benefit from more improvements in product matching, product feeds, and content moderation, which will also allow syndicated content to move at a faster pace. And finally, in our ongoing commitment to an open content network, we intend to pursue additional open network agreements for all retailers and brands that wish to participate. I believe these initiatives and our continued focus on our clients are the keys to increasing our revenue growth. As we enter fiscal 2018, our SaaS revenue growth rates will increase as the year progresses as we benefit from a nice performance in net bookings in 2017, and continued progress in our overall fundamentals. We remain in the early days of monetizing our shopper profile data and continue to believe it has the potential to add to the growth profile of Bazaarvoice over the long-term. Before I close, note that we recently announced two additions to our Board of Directors. Ali Wing, former Chief Marketing Officer and Executive Vice President of Digital Channels at Maurices; and Krista Berry, former Chief Digital Officer of Kohl's Corporation. Their experience and knowledge of omnichannel retail, digital marketing, and customer insights will be valuable to Bazaarvoice and we look forward to their contributions. In summary, Bazaarvoice is a completely different company than it was three years ago. During that time, we have transformed our company to one with a strong foundation for the future built on satisfied clients, engaged and passionate employees and obsession of making brands and retailers phenomenally successful in today's digital marketplace. I’m grateful to our shareholders for the patients during this transformation and to all 763 BVers for their ongoing dedication and commitment to continuing to build a great company. As we look to the new year, our SaaS growth rates are increasing, EBITDA is growing, and we are generating increasing levels of free cash flow. We are driving our SaaS business further with the launch of BRAND EDGE and we continue to see opportunity to monetize our shopper profile data. I’m excited to see what 2018 has in store for all of us. Thank you and I would now like to turn the call over to Jim.

Thank you Gene, and thank you again to everyone who have joined our call. Today, we are reporting results for our fiscal fourth quarter and full year ended April 30, 2017. For fiscal 2017, we achieved total revenue of $201.2 million within our guidance range. SaaS revenue was $191 million in-line with our internal expectations, despite foreign exchange headwinds of approximately $1.5 million during the year. A notable highlight for the year was our significant improvement in dollar churn, a direct result of our focus on customer satisfaction, along with products and service innovation. We achieved a dollar churn rate of approximately 15% at fiscal 2017 better than we expected entering the year and then over 500 basis point improvement from last year. The improvement of this very important fundamental leads to higher SaaS revenue growth in fiscal 2018. Advertising revenue for the year was $10.2 million, up 23% from last year and within our recent guidance. We continue to make significant strides in expanding our adjusted EBITDA. For the fiscal year, we achieved $16.7 million, at the high-end of our guidance range, and up a significant $7.6 million or more than 80% from last year. And as we have been predicting for last several quarters we are quite pleased that we achieved our first year of positive free cash flow. We generated $5.7 million in fiscal 2017, up nearly $10 million from last year. Our GAAP loss per share improved to $0.19 in fiscal 2017 from a loss of $0.31 last year. Our non-GAAP earnings per share was $0.02, our first positive year for this metric as a public company. We have come a long way in just three years. From negative adjusted EBITDA $17.7 million in fiscal 2014, to positive $16.7 million, and from negative free cash flow of $54.1 million to positive $5.7 million and nearly $16 million free cash flow increase. We achieved these significant improvements by focusing on the fundamentals, allocation of resources, customer satisfaction, product and service innovation, sales productivity and operational efficiency, and we are committed to driving further increases in adjusted EBITDA and free cash flow in fiscal 2018 and beyond, while at the same time increasing our revenue growth rates. Now let me turn to our financial results for the fourth quarter. We achieved total revenue of $50.2 million in the range of our guidance. We achieved SaaS revenue of $47.9 million, which was down $1.2 million from the same period a year ago. Recall that approximately $1.6 million of revenue in Q4 of fiscal 2016 was related to out of period revenue and higher-than-typical revenue coming off hold for nonrenewal or nonpayment. We also incurred foreign exchange headwinds of approximately $700,000 in Q4, relative to the same period a year ago. Without these two items, our year-over-year SaaS revenue growth rate would have been approximately 2%. We achieved advertising revenue of $2.3 million up 46% year-over-year and as we predicted in our last call, higher than the Q3 growth rate. Adjusted EBITDA was $2.3 million at the high-end of our guidance range. Our GAAP loss per share for the quarter was $0.05. Our non-GAAP loss per share was $0.02 at the better end of our guidance of a loss of $0.02 to $0.04. We ended the year with 1,494 active clients, up 7% from a year ago. Annualized SaaS revenue per average active client in the fourth quarter was $130,000, down slightly from recent quarters. As in Q4, we launched the second highest number of clients over the last quarters. Note that we typically launched clients at less than our average revenue per client and grow them thereafter. Our client retention rate was 95.7% in Q4 and 82.8% for the year, an improvement of over 300 basis points from fiscal 2016. Our dollar churn rate for Q4 marked our fifth consecutive quarter of year-over-year improvement. In addition, for the first time since fiscal 2014 our dollar churn rate for the year was better than a client churn rate, a significant accomplishment. Looking forward to fiscal 2018, we expect our dollar churn rate to be similar to what it was in fiscal 2017. Moving to our P&L, we continue to focus on operational efficiency in fiscal 2017 and expect that to continue in fiscal 2018, especially with respect to sales and marketing expenses. As Gene noted, we have recently reduced our level of investment in advertising and have also reduced expenses in other areas of business to gain additional operational efficiencies. We believe this more measured approach to balancing future revenue growth with improving profitability is the best way to increase shareholder value and allows us to continue to invest in our three key assets, our CGC expertise, our network, and our shopper data. Our gross margin for the fourth quarter was 67%, down 110 basis points from the same period last year. Our full year gross margin was 68.1%, up 40 basis points. We expect our gross margin to be in the mid-to-high 60s in fiscal 2018. Sales and marketing expenses for the fourth quarter were $16.9 million or 33.7% of revenue, compared to $17.3 billion or 34.1% of revenue in the same period last year. For the full-year sales and marketing expenses were down $4.4 million or 7% from the prior year, as our sales and marketing productivity continued to improve. Over the last three years, we have reduced sales and marketing expenses from 48.3% of revenue to 30.6% of revenue. Going into fiscal 2018, we expect sales and marketing expenses to continue to improve as a percent of revenue as we have recently reduced the size of our advertising sales team. R&D expenses for the fourth quarter were $8.3 million or 16.6% of revenue, as compared to $9.4 million or 18.5% in the same period last year. For the full year R&D expenses were down $2.1 million or 120 basis points from the prior year. For fiscal 2018, we expect R&D as a percent of revenue to be similar to fiscal 2017 as we leverage our strong engineering team to continue to innovate, while our business scales. G&A expenses for the fourth quarter were $6.1 million or 12.1% of revenue, up from $5.6 million in the same period last year. For the full-year, G&A expenses were up slightly from the prior year. For fiscal 2018, we expect G&A as a percent of revenue to be similar to fiscal 2017. We ended the year with 763 employees roughly the same from a year ago and we achieved annualized revenue per average employee of $264,000, up 3% from last year as we continue to tightly manage our headcount across all functions. Moving on to the balance sheet and cash flow. We ended the year with $91 million in cash, cash equivalents and short-term investments and a credit line balance of $32 million having paid down $10 million during the year. And since the end of the fiscal year, because of our strong free cash flow in Q4, we paid down an additional $5 million, such that as of today we have $27 million debt outstanding. We ended the year with DSOs of 77. We had another strong collections quarter, ageing is quite good and our bad debt expense and our P&L remain minimal. As we expected in Q4, we produced very strong positive cash flow from operations of $14.2 million, driven by the near-record collections, as well as a $3.5 million state sales tax refunds for years 2012 through 2016. CapEx was $2.1 million, most of which was capitalization or developed software. As a result, free cash flow in Q4 was a positive $12.1 million. Now turning to our financial guidance and some context. As we noted earlier in the call, we have recently reduced our level of investment in advertising, which will likely result in advertising revenue in fiscal 2018 being less than we had previously expected. We are producing ever increasing adjusted EBITDA towards our long-term goal of 18% to 22% of revenue. We expect our free cash flow to continue to increase on an annual basis, and we are quite pleased that our revenue rates growth rates are beginning to increase in fiscal 2018. For the full fiscal year 2018, we expect total revenue to be in the range of $203.5 million to $207.5 million. We expect our SaaS revenue growth rates to increase in fiscal 2018, driven primarily by our strong dollar churn improvement that we achieved in fiscal 2017, offset by continuing FX headwinds in the first half. We also expect that our second-half growth rates will be higher than the first half. We expect adjusted EBITDA to be in the range of $22 million to $24 million, an increase at the midpoint of $6.3 million or 38% from fiscal 2017. Non-GAAP earnings per share is expected to be in the range of $0.02 to $0.06 based on 85.5 million weighted average shares outstanding. For the first quarter of fiscal 2018, we expect total revenue to be in the range of $49.4 to $50.2 million, including foreign exchange headwinds of approximately $0.05 million. We expect adjusted EBITDA to be in the range of $3.4 million to $4 million. Non-GAAP loss per share is expected to be in the range of $0 to $0.02, based on 84.6 million weighted average shares outstanding. In summary, we have come a long way in improving our financial profile over the last several years and we look forward to what the future holds for Bazaarvoice. With that operator, please turn the call over for questions.

Thank you. [Operator Instructions] Our first question is from Stephen Ju from Credit Suisse. Please go ahead.

Hi guys, this is Chris on for Stephen. Gene, maybe can you help us think about the BRAND EDGE product, what value does that bring to the brand partners, as well as the retailers and then maybe Jim can you give us an idea of the magnitude of the reduction in the advertising sales force and are you guys at a level where you feel comfortable with headcount there? Thanks.

Yes, so BRAND EDGE is the product that we have been working on all year. I think we have talked in past calls about small/medium business offering, and as we have been working on BRAND EDGE we have now felt more comfortable that it will scale to even larger brands. So, we are excited about where it is at. The thing about BRAND EDGE is that it’s built specifically for brands with brands in mind. The company's history has been to use our conversations platform for both retailers and brands, but when you really look at conversations, it is beginning and its founding is really around the retail channel. The reason being is, conversations is built to display reviews on product pages, which is obviously a big part of the e-commerce experience at retail. Brand Edge takes that functionality away, it’s a fairly complex part of the conversations application. And BRAND EDGE is really simply built to collect content from advocates and syndicated across the network. So it’s a much simpler product to use, which brands appreciate because brands tend to lack the technical expertise that our e-commerce retailers have. So it is much simpler to use, it is easier to deploy for our brand clients and really focuses on their digital presence in retail, which is the most important part of the brands focus from a CGC standpoint.

This is Jim. Regarding advertising, we reduced our ad resources by about 25% at the end of Q4. We had, entering FY 2017, we just achieved critical mass of targetable shoppers and ended up the year with a solid growth of 23%, but that was below as we noted on the call below the sort of the potential we have been investing for. So we made that choice at the end of Q4 and reducing our ad resources by approximately 25%. On a go-forward basis - and by the way, the 25% included some reps as well. And we are comfortable with that headcount now on a go-forward basis, we expect our - in FY 2018 our shopper advertising portion of that revenue will likely continue to grow. The retail - what we call the retail network, which is really the legacy revenue left over from Longboard Media, is likely to continue to shrink in FY 2018. So we have got minimal investment on that.

The only thing I would add is that, what we are doing with the advertising business is very similar to what we did with our software as a service business a couple of years ago. When you look at sales productivity, it was just frankly too low across-the-board, and so just like we did with the SaaS team, we pulled back in some areas and forced sales productivity higher by focusing on the fundamentals in the sales organization and moving forward. And we plan to do the same thing with advertising. I will note that our marketing and our opportunity generation spending in advertising is going to be similar, so we're going to continue to focus on generating demand, raising more awareness et cetera, but we want to make sure that we drive the right sales fundamentals and sales economics before we expand the sales organization and advertising.

Okay, helpful, thanks guys.

Our next question is from Kevin Liu from B. Riley & Company. Please go ahead.

Hi good afternoon. Just in terms of the recommendations product, now that you might go to kind of a direct access model to your data, can you just talk about how that changes either the pricing or recurring revenue basis, you would expect to see annually?

Kevin, we are not really ready to talk about the pricing model for the personalization offering we have. Again, we continue to be pleased by the impact that it is showing in pilots, as you know licensing your data or access to data can be priced in many different forms and so we are still little bit way - we are still ways out from that kind of decision.

Got it, and just, I may have missed it on the call, but did you guys provide the number of client launches within the quarter and beyond that, just the number of net new client adds for the period was far greater than we have seen for the past several, so just kind of curious if you're seeing - if you are reaching some sort of inflection point where just the number and volume of transactions should continue to tick higher over the coming year?

I am generally very pleased with demand at this point. I think we are comfortable with our pipeline levels right now. I think BRAND EDGE is going to open up a little bit more of a transactional business as we again sell into the small/medium business part of the brand business with a product that we think works very well down there. So, I do think we a have the opportunity to tick up our transactional volume overall.

Yes, and in Q4 our launches did go up. I think we launched about 98 or 100 in Q4, and we had a pretty good bookings quarter in Q4 from a number of clients booked as well.

And just one last one from me. You guys have multiple products or services you can sell into the market know, particularly with conversations on Curations, just curious if we are starting to see more of your clients adopt multiple modules from you or maybe have initial sales where you are including both conversations and Curations.

I don't know if I have a clear trend for you, I guess the commentary I would offer you is conversations hit the plan we had set forth in the year, so we are pleased that conversations did so. Curations, I think the big news on Curations is that we released Curations 3 early in Q4, Curations 3 brings up entirely new user interface and has a number of features that we think makes the product very competitive now with organizations that are solely focused on the visual commerce area and I think the combination of Curations and obviously a strong ratings and review and other CGC platform and from one vendor I think offers us the opportunity to expand our footprint with our accounts. So I think we are generally pleased with our product line of going forward. The one thing I would say is a pleasant surprise for us is the continuing demand for Sampling. As you all know, we launched sampling a while back as a product, it really received tepid demand, it’s kind of along the same lines of what I describe with BRAND EDGE where the brands really want very simple solutions or services that people actually execute programs for them. So when we turn Sampling into a managed service, we have seen really good demand out of the brand category for sampling. And we think sampling is going to be a great product in conjunction with BRAND EDGE, it is also going to be a great opportunity to start a relationship with the brand to acquire more brands. So we are pretty pleased with the pivot we made on Sampling and the demand we saw in Q4, and frankly the bookings we had in Q4 for Sampling.

I would just add one thing to that. Going after launched budgets of Sampling and BRAND EDGE is a new budget that we are going after on a go forward basis.

Alright, sounds good. Thanks for taking the questions. Good luck this year.

Thank you.

Our next question is from Mike Latimore from Northland Capital Markets. Please go ahead.

Thanks. I guess on the BRAND EDGE, maybe the small business category, does the product and that effort sort of fit naturally into your current sales force or do you have to add some new types of salespeople to go after the small business market?

We will go after that market predominantly with an inside sales focus, right, which is commensurate for what we think are the quotas and the opportunity down that market from a deal size standpoint. The BRAND EDGE business will range from very transactional relationships if you will month-to-month, but very, very small brands all with the credit card type payment all the way up to what we call standard one-year agreements where they pass on a monthly revenue basis. And so we will see, obviously we will have a lot more details in a few weeks on the packaging and the lineup on BRAND EDGE, but we think it will align well to what brand, how brands want to buy, and how they want to engage with us.

Thank you. And then you mentioned your fleet of the pipeline, I guess you are comfortable with that, is that equally comfortable with US versus Europe and I guess are you going to be hiring anymore salespeople in the SaaS category this year?

So Europe has really come long ways in last 90 days with ramping sales people. So, I am pleased with that. I am also pleased with the pipeline generally speaking. I think, as a company we are entering 2018 with more ramp sales individuals than we did a year ago. Adding actual additional people is something we usually make mid-year based on what we see in the trend line.

And just to wrap up on advertising, it sounds like the shopper data-related advertising initiative should grow, legacy declines, so should we think of total advertising kind of flattish this year?

Yes Mike, this is Jim. We are not providing specific guidance for advertising other than to say shopper averages 80% of the revenues is likely to continue to grow what retail network is likely to continue to shrink. It is just, as you know, it’s been hard to predict the advertising and we do have some quarterly fluctuations about 5%, but we are excited about the shopper advertising continuing to leverage our first-party data, and that’s where, frankly we have focused our resources.

The co-premises of the advertising business had not changed, which is strong repeat buying very small campaign cancellations. Good resulting campaigns. Right, our challenge has been to break through a fairly crowded market and to establish beachheads and as we establish beachheads, we have seen those beachheads expand. So we are, as I said, the marketing mix continues to be strategic to drive the business forward, but we are, we have taken down our sales headcount and we have taken down our sales support oriented headcount obviously, to drive what we think is the right productivity level, and then to invest in it as we go as we start seeing more. We have more visibility towards revenue growth.

Right.

[Operator Instructions] Next question comes from Stan Zlotsky from Morgan Stanley. Please go ahead.

Hi guys, good afternoon and thank you for taking my question. I wanted to continue with the shopper advertising product. How are you going about actually increasing awareness for that product in an industry that you rightfully said is a very crowded industry, there is a lot of well-established ad tech vendors in there, so how do you establish that beachhead and what is the conversation that needs to happen in order for you to grow that awareness?

Stan the most - probably the most important focus is being - is to take the advertising team and focus on known verticals that are really successful for us, right. So as you know, it is very early right, it is really the first few, we just finished the first year of our advertising initiative, and we know that there are areas like consumer electronics to name one, but there are 4, 5, 6 verticals that we have seen repeat success over and over again. And using those established successes to expand, right, and so being much more specific and more targeted and how we market ourselves, our top tracks within those verticals, our success stories within those verticals, instead of being a little too broad, and I think by being more vertically oriented we will continue to build blocks and knock over the bowling pins if you will over time to continue to broaden our areas. So, we think we still believe advertising has a lot of revenue contribution to the company and 23%, I mean we sold our growth revenue, roughly was $25 million and these are rough numbers, we don't report gross publicly, but $25 million is a lot of advertising sales in 2017. So there is nothing to sneeze at that from an overall success standpoint. We did think we could go faster because we saw fantastic positive early returns and now we know, we are lot smart about it, but we still believe advertising is a significant opportunity for us.

Okay, got it. And so in that context, how are you thinking about your long term targets that we have discussed in the past in light of this kind of scaling back on the advertising business, I sense that that the broader opportunities still there, but since you are scaling back some of the more immediate sales distribution, just frame for us the longer term targets in light of that?

Look, our core business, our Software as a Service business perform almost exactly how we thought it would in 2017. So we knew we had to rebuild in that front and we have largely accomplished that, we would have beat our internal plan if it wasn't for 1.5 million of foreign exchange headwinds. So, when we look at the SaaS business and what we are trying to accomplish, we had a good year. We need bookings growth in the SaaS business, right. We need sales growth to pick up and I think we are positioned to do that, but the SaaS business is largely doing what we expected. When we look at the data side of it, I think we have two bets down and actually we are working on other bets besides personalization and advertising, but they are nascent at this point. We have two bets down that I believe still have opportunity for this company to monetize and make revenue. The data, the results are too compelling for us not to have something that scales to some degree. When you look at the long term model that we put together a while back, I think the company has the opportunity to get to $400 million, are we going to get that in five years, probably not. We’re probably not on that pace like we said back in October, but I do think we are - we see this company growing and I think, if we were to make it to 300 million or 350 million that would still be a significantly big step for the company and a nice return for our shareholders. So we’re not changing our bets, we still think the bets we have down are very important and have good opportunity. The pace at which they are unfolding is obviously not the one we thought it would be on a year ago.

Got it. And just one final follow-up. The sampling product it certainly sounds really interesting and just remind us how big is that as a percent of your revenue of bookings or however you are measuring the progress for that product, and also since Sampling is a managed product - managed service rather, what kind of margins do you see on that product versus some of the others in your portfolio? Thank you. That's it from me.

You bet Stan. Sampling is still very small part. It is - I don't think it is material at this point. The opportunities with Sampling is that as Jim alluded to, brands are launching products constantly and being able to be ready digitally is to have contend at the day of launch. And the best way to drive content at the day of launch, one of the best ways is using Sampling to sample products in exchange for content. And so, Sampling has on its own, or Sampling in conjunction with BRAND EDGE we think opens up an opportunity for us to participate more meaningfully in the spend brands put against product launches, and we think that is a very big opportunity, billions of dollars if you look at it over worldwide. And the reason why we say that is because in the early going, we have seen shorten sales cycles and a willingness for brands to get moving with those quickly because we’re focusing on something that is very important to them, and that is a successful digital launch of the product. Jim you can comment on the managed services side of that equation.

Yes, from a mix standpoint, from a revenue standpoint, services revenues is immaterial at this point. The big mix of bookings in FY 2017 is up versus FY 2016. It is a very manageable portion of the bookings or selling more managed services, especially Sampling as Gene noted. From a margin perspective, at this point, the gross margin impact is not material, we're pretty confident we can make an adequate Services margin typical gross margin on Services with Sampling perhaps higher. Just one item to note from an EBITDA margin standpoint, there is minimal R&D required because of the service. And it is typically sold with our ASF offering, so it is not a full cost acquisition along with the booking. So, we think there is plenty room on the P&L going forward to accommodate more service revenue.

Got it. Thank you, guys.

Thank you. This concludes the question-and-answer session. I would like to turn the floor back over to management for any closing comments.

Thank you all. We look forward to updating you on 2018 as the year unfolds. Thanks again.

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