DemandTec, Inc. F1Q09 (Quarter End 05/31/08) Earnings Call Transcript

DemandTec, Inc. (DMAN)

F1Q09 Earnings Call

July 2, 2008 5:00 pm ET

Executives

Dan Fishback – President, Chief Executive Officer

Mark Culhane – Executive Vice President, Chief Financial Officer

Tim Dolan – Investor Relations

Analysts

[Nandim Umlati] - Deutsche Bank

Nabil Elsheshai – Pacific Crest Securities

Bryan McGrath – Credit Suisse

Ariel Sokol – Wedbush Morgan Securities

Greg McDowell – JMP Securities

Keith Weiss – Morgan Stanley

Laura Lederman – William Blair

Presentation

Operator

Welcome to the DemandTec first quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn the conference over to our host, Timothy Dolan.

Timothy Dolan

Good afternoon, thank you for joining us to discuss DemandTec’s first quarter fiscal 2009 results. This call can also be accessed in the Investor Relations section of DemandTec’s website at www.demandtec.com. With me on today’s call are Dan Fishback, DemandTec’s President and CEO and Mark Culhane, DemandTec’s Chief Financial Officer.

After the market close today DemandTec issued a press release with results for its first quarter of fiscal 2009. A copy of the release is available at the company’s website. Please note that we will be discussing in this conference call non-GAAP results which excludes stock based compensation and amortization of intangible assets. We refer you to the press release for reconciliation of these non-GAAP amounts to their comparable GAAP amounts.

During the course of this conference call, DemandTec’s management may make forward-looking statements regarding financial projects, plans and objections for future operations and managements beliefs about potential market size and growth as well as the company’s future performance, financial condition or results of operations. These forward-looking statements are not historical facts but rather reflect DemandTec’s current expectations and beliefs based on currently available information. We undertake no obligation to provide updates in the future.

DemandTec’s actual results may differ materially from those projected. The risk factors section of our form 10K on file with the SEC discloses risks that could cause these differences. Please note that any future product, feature or specifications referenced in today’s call are informational only and are not commitments to deliver any technology or enhancement. DemandTec reserves the right to modify its product plans at any time.

With that I’d now like to turn the call over to DemandTec’s President and CEO, Dan Fishback.

Dan Fishback

I’ll start with a brief summary of our financial results and then update everyone regarding our tactical execution in the quarter and conclude with our progress against our three-point growth strategy. Mark will then provide more details on our financial results as well as an update on our FY09 outlook after which we will take questions.

Revenue for the first quarter was $18.1 million representing a 36% growth on a year-over-year basis. Non-GAAP EPS was $0.03, a penny better than our guidance while we generated strong cash flow from operations of $4.4 million in the quarter.

We are pleased with the company’s financial results which were highlighted by solid sales and marketing execution, revenue growth, non-GAAP operating profitability that were at or above our guidance as well as two new product introductions and the announcement of a strategic relationship that further extends our competitive differentiation.

From a high level perspective we have not seen any changes in the macroeconomic landscape. Rising wholesale prices continue to challenge retailers as they balance margin targets with customer loyalty. As we have discussed in the past approximately 70% of our retail customers are fast moving consumer goods or FMCG retailers.

Please note we have no apparel, department store retail customers or prospects. The trend of disposable consumer spend shifting away from non-essential items to basic goods at the local grocery store or mass merchants benefits these FMCG retailers as well as the CP company’s that supply them.

In many cases inflation can benefit their financial metrics such as year-over-year growth and same store sales. We continue to see a high degree of interest in our solutions. Our competitive win rates remain high and our deals are moving forward. I am particularly pleased with the market’s response as we have adapted our marketing message around the value our solutions provide in this environment which is characterized by higher wholesale costs and consumer uncertainty.

In many cases our customers are managing cost increases at a rate they have not seen since the 1970’s while in the U.S. we continue to see a relatively low GDP growth. We are confident we understand each of the markets we serve and how our solutions drive value in these unique markets around the globe for both retailers and CP companies.

DemandTec can help our customers determine if they should raise their prices, which products consumers will spend more for price for items, which items have more elasticity or perhaps which items should be priced or promoted together. Many of our world class customers see this economic environment as an opportunity to partner with DemandTec to define their brand or banner while driving predictable sales, margin and volume at the expense of their competitors.

As we have done in previous conference calls I would like to provide a review of our three-point growth strategy along with an update on how we are making progress in each area. The first component to our growth strategy is continuing to extend our industry leadership position with the world’s retailers.

We are using our strong market position to pursue additional retail opportunities around the globe and we believe our existing retail customers such as WalMart, Best Buy, Monoprice, Safeway, [Cozino] and Target will influence other retailers and CP companies by changing the dynamics of the way they operate in their respective markets.

In our last couple of calls we have highlighted our new retail wins in international markets such as Latin America, Europe and the Asia Pacific region. We are pleased with the progress DemandTec has made leveraging our investments in distribution, partnerships and multi language product capabilities. During the first quarter we continued to extend our market leadership position with retailers in the domestic market.

For example, we added Tops Markets and another leading grocer to our customer base. Tops Markets is a 10,000 plus employee, regional supermarket chain headquartered in New York. Tops has 71 full service supermarkets spread across western and central New York in addition to northwestern Pennsylvania. They subscribe to Every Day Price Management, the new name for our software service, enabling retailers to manage and maintain every day prices as well as an end-to-end promotional management solution including both promotion planning and optimization and deal management.

DemandTec was selected because of our ability to provide an integrated suite of software services to best determine how wholesale costs should be passed along to customers while balancing sales, margin and customer loyalty.

As mentioned above, a leading grocer of natural and organic foods based in the U.S. that operates stores in North America and the U.K. subscribed to our Every Day Price Management Solution and our Every Day Price Optimization Service as well.

Moving to the second component of our growth strategy, we are focused on delivering measurable business results to our customers in order to drive renewals as well as the adoption of our full suite of other solutions including promotion, mark down and assortment solutions. During the first quarter we expanded our relationship with Safeway, signing what was one of the largest add-on deals in the history of our company. Safeway is a proven leader in their industry and we continue to be enthusiastic about our partnership. Safeway has been a long-term customer of DemandTec.

In addition, during the first quarter we experienced strong renewal success with our customers. For example we renewed our relationship with Longs Drugs and Monoprice with each of these retailers expanding the scope of our relationship. We believe that as we are able to demonstrate the tremendous value of our solutions customers will continue to come back to DemandTec to invest in new functionality and expanding suites of value added software services such as our recently introduced Assortment Optimization Software Service or our Integrated Offering with one-to-one marketing vendor Precima, both of which I will discuss in more detail in a moment.

During the first quarter we also continued to make progress against our third component of our growth strategy which is to leverage our success with retailers to provide our software services to CP companies. An example of this was our recent deal with General Mills, one of the largest manufacturers of consumer food products in the world. General Mills purchased DemandTec’s Trade Planning and Optimization Solution to enable them to get a better understanding of consumer behavior to drive win-win trade promotions and every day price plans with their retail trading partners.

Our relationship with General Mills represents a multi-million dollar agreement and is one of the largest agreements with a CP company to date. Over the past year we have been increasingly successful up selling CP companies to higher value add, higher price solutions which can increase the value of our CP relationships from tens of thousands of dollars per year to thousands of dollars per year to even millions per year.

This is a significant development as we greatly expand our market opportunity and diversify our business. We continue to expect a growing portion of our revenue to come from CP companies as evidenced by transactions with General Mills and last quarter with Con-Agra in addition to the fact that CP bookings during our last fiscal year 2008 more than doubled as a percentage of our total bookings.

During the quarter we also announced the re-branding of our trade point network as the DemandTec Trade Point Network. With over 1.5 million transactions to date this is a one-of-a-kind network that delivers efficiency and lower costs to retailers and CP companies alike while providing a platform for retailer defined collaboration that leverages our science based software services to better understand the consumer for improved sales, margin and loyalty.

We also introduced Funds Tracker, which is a new software service available via the DemandTec Trade Point Network that provides accurate visibility into trade spend balances, saving time and enabling better business decisions for CP companies. Fund Tracker is an example of how we expect to continue to deliver smaller software services or applications that are quick to deploy, quick to deliver value to our customers and help DemandTec to expand our account presence within CP companies.

I’ll finish with three significant developments announced during the quarter that expand our value proposition and our market opportunity. First was the introduction of Assortment Optimization which enables retailers to further leverage our science platform to optimize and localize their assortments. To accelerate our time to market with best in class functionality we recently closed a technology purchase with exclusive rights to Cannondale and Associates Rich Mix technology in the retail industry.

This functionality has been enhanced and proven over the past 12 years and is becoming the industry standard for assortment planning used by CP companies. The integration of Rich Mix’s capability with DemandTec’s internal development efforts will allow DemandTec to be the first company to enable retailers to understand which items on their shelves add variety, incremental sales and profit to a category versus items that only clutter the assortment with duplication.

For example, if you pull an item out of stock how does the consumer respond? Will the decision cannibalize other items? How will the consumer reallocate their purchase dollars? Might you disenfranchise the shopper altogether so they go to a competitor store? Given the current environment the right localized assortment and price is the number one priority and opportunity for retailers. Get it right and retailers and CP companies can gain share, sales and margin.

We believe there is a very large opportunity associated with helping our retail customers address the challenges they face in localizing their assortment. By comparison, we believe this area is ultimately as fundamental and important to our customers as our flagship Every Day Price Optimization and Every Day Price Management services.

We also announced a strategic relationship with Precima, a leading one-to-one marketing company that is a wholly owned subsidiary of Alliance Data Systems. This is the first partnership of its kind enabling retailers to integrate merchandising and marketing activities based on a scientific, quantified understanding of the consumer.

Finally, we announced the DemandTec Trade Point Network Partner Program where third-party software services can be accessed by our growing ecosystem of retailers and CP companies within the DemandTec Trade Point Network. The introduction of Assortment Optimization, our partnership with Precima and the DemandTec Trade Point Network Partner Program are examples of our growing footprint to understand consumer behavior, to drive predictable profit, sales and loyalty for our retailers and CP companies alike.

In summary, the first quarter was a solid start to our fiscal year. In addition with the expansion of our value proposition and increasing penetration of the CP industry we believe we are significantly expanding our market opportunity and strengthening our competitive advantage. DemandTec is the only consumer demand management vendor to offer retailers a comprehensive suite of advanced analytics and optimization software services that integrate pricing, promotion, mark down, assortment, space planning and loyalty marketing via software as a service in a network platform.

With that let me turn it over to Mark to go through the financials.

Mark Culhane

I’ll provide more details on our first quarter operating results followed by financial guidance for the second quarter and an update of our full-year 2009 guidance before opening the call for questions.

Let me begin with our first quarter operating results. Total revenue for the first quarter was $18.1 million, better than our guidance of $17.4 to $17.7 million and representing an increase of 36% over the comparable period last year and 4% sequentially over our fourth quarter of fiscal 2008. As a reminder, we have a subscription based business model. A majority of our revenue is generated from our retail customers with pricing based on the number of stores, categories and SKU’s and those agreements generally are multi-year, multi-million dollar contracts.

A growing percentage of our business is related to CP companies where pricing is based on the number of product categories and retail programs and these agreements are typically one-year and range from tens of thousands to multi-million dollar contracts. We generated 87% of our first quarter revenue from the retail industry with 13% coming from the CP industry. This compares to a vertical mix of 93% and 7% respectively for the comparable quarter last year.

Geographically we generated $15.4 million or 85% of total revenue from the United States compared to $11.6 million or 87% of total revenue in the first quarter of 2008. Revenue from international operations was $2.7 million or 15% of total revenue compared to $1.6 million or 13% of total revenue in the first quarter of 2008.

Turning to costs and profitability for our first quarter, we will be discussing our results on both a GAAP and non-GAAP basis. Please be sure to look at our press release for a reconciliation of non-GAAP to GAAP amounts. I’ll begin with a summary of our non-GAAP results which will exclude non-cash amounts associated with stock based compensation and amortization of intangible assets.

Non-GAAP gross profit was $12.9 million in the first quarter representing a year-over-year increase of 41%. Non-GAAP gross profit in the first quarter excludes $152,000 of amortization of intangibles and $389,000 of stock based compensation. Non-GAAP gross margin was 71.7%, an increase over last quarter’s 71.4% and the company’s full year fiscal 2008 gross margins of 69.7%.

Turning to non-GAAP operating expenses for the first quarter, non-GAAP R&D expense was $5.9 million, an 18% increase year-over-year and represented 33% on a percentage of revenue basis. Non-GAAP R&D expense excludes $592,000 of stock based compensation expense. DemandTec’s R&D expense is higher as a percentage of revenue compared to many other software as a service providers as we are addressing a complex solution requiring expertise in both science and software development and we are investing to expand our leadership position. From a long-term perspective we expect R&D expense to decline as a percentage of revenue even as it grows in absolute dollars.

Non-GAAP sales and marketing expense was $4.7 million during the first quarter, a 30% increase year-over-year and represented 26% on a percentage of revenue basis. Non-GAAP sales and marketing expense excludes $440,000 of stock based compensation expense.

During the quarter non-GAAP G&A expense was $1.8 million, an 82% increase year-over-year and represented 10% on a percentage of revenue basis. Non-GAAP G&A expense excludes $368,000 of stock based compensation expense. The increase in non-GAAP G&A expense from the prior year quarter is primarily related to the costs associated with becoming a public company, most notably first year compliance costs with the Sarbanes-Oxley Act.

Our non-GAAP operating income was $491,000 in the first quarter compared to a non-GAAP operating loss of $471,000 in the year ago quarter and at the high end of our guidance. Non-GAAP operating income excludes $1.8 million of stock based compensation expense and $241,000 of amortization of intangibles.

Total non-operating income was $585,000 during the first quarter up from a non-operating expense of $122,000 in the year ago quarter but down from $821,000 in non-operating income last quarter. The quarter to quarter decline in non-operating income was due to lower interest rates.

Non-GAAP net income was $996,000 or a non-GAAP earnings per share of $0.03 based on 31.3 million fully diluted weighted average shares outstanding. This is an improvement from a non-GAAP loss per share of $0.09 in the year ago quarter.

Looking at our results for quarter on a GAAP basis including stock based compensation expense and amortization of intangibles, our GAAP gross profit was $12.4 million and our operating loss was $1.5 million. Our net loss was $1 million and our GAAP loss per share was $0.04 based on 26.6 million weighted average shares outstanding. This compares to a GAAP loss per share of $0.19 in the year ago quarter.

Turning to the balance sheet, cash and marketable securities were $80.4 million at the end of the first quarter of fiscal 2009, an increase compared to $75.9 million at the end of the previous quarter primarily due to positive cash flow from operations. Our accounts receivable balance at the end of the quarter was $12.3 million representing an adjusted DSO of 80 days taking into consideration the change in deferred revenue given we have a subscription based business model.

This compares to 83 days at the end of the fourth quarter. There can be material fluctuations from a short-term perspective given the large values associated with our retail billings.

Taking a look at deferred revenue we ended the quarter with short-term deferred revenue of $43.7 million, an increase of 24% on a year-over-year basis and a slight seasonal decline of approximately $250,000 on a sequential basis as we indicated it would on last quarter’s call.

Long-term deferred revenue ended the quarter at $7.7 million which is the third consecutive quarter this account balance has declined as a result of the fact that since we have become a public company we have increasingly moved to annual billings on our multi-year contracts whereas in the past we would occasionally bill for all years up front. We are able to make this move because of the strength of our balance sheet combined with a strong cash flow that we are generating.

In addition I would like to reiterate comments I have made on previous calls that our deferred revenue may fluctuate on a quarter to quarter basis due to factors such as the timing of renewals and billings on multi-year engagements in addition to whether customers paid for multi years up front on historical deals.

Finally, looking at our cash flow for the first quarter of fiscal 2009 we generated $4.4 million in positive cash flow from operations and used $1.1 million on capital expenditures resulting in $3.3 million of free cash flow for the quarter or 18% on a percentage of revenue basis which is ahead of our annual free cash flow margin target of 12% that we discussed on our last call. This was also an increased compared to the year ago period where we generated $3.2 million in cash from operations and used $1.4 million on capital expenditures resulting in $1.8 million of free cash flow for the first quarter of fiscal 2008.

Before turning it over to questions I will finish by providing guidance for the second quarter and then update our fiscal year 2009 guidance. The operating income and earnings per share guidance I am going to give are non-GAAP and exclude stock based compensation expense and the amortization of intangibles.

We expect our second quarter revenue to range from $18.3 to $18.5 million, non-GAAP operating income to be in the range of $500,000 to $650,000 and our non-GAAP net earnings per share to be $0.03 based on fully diluted, weighted average shares outstanding of approximately 32.8 million shares.

Our updated fiscal 2009 expectations are for revenue in the range of $74.5 to $75.5 million which increases the mid-point of our range by $750,000 compared to our original guidance. From a high level perspective we continue to expect challenging approval processes which have a tendency to lengthen our sales cycles. That notwithstanding we expect our win rates to remain high. We have a strong sales pipeline and we expect to deliver solid growth during this challenging environment.

From a profitability perspective we currently expect our non-GAAP operating income to be in a range of $2.3 to $2.9 million which is an increase from our original guidance of $2.1 to $2.8 million and we are increasing our guidance for non-GAAP net earnings per share to $0.12 to $0.14. This assumes fully diluted weighted average shares outstanding for the year of approximately 33 million.

While we focus our guidance on non-GAAP metrics because we believe it is the most relevant way to measure our financial performance and it is how we measure ourselves internally, I would like to give some perspective on the two expenses we currently exclude from our non-GAAP results for those analysts modeling our business on both a GAAP and non-GAAP basis.

First we expect an additional $242,000 of amortization of intangibles expense in each of the remaining quarters of fiscal 2009 as a result of our acquisition of Cannondale’s Rich Mix technology. Second we currently expect our stock based compensation expense to run at approximately $2.3 to $2.5 million in each of the remaining quarters this fiscal year.

In summary, our first quarter results were strong and we expect to deliver solid revenue growth, consistent double digit free cash flow margins and expanding non-GAAP gross margins and operating margins in fiscal 2009. We are focused on building a long-term winner that can scale to much larger levels in the years ahead and we believe we are on our way to doing so by executing against our three-point growth strategy.

With that we will now open the call for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Nandim Umlati] - Deutsche Bank.

[Nandim Umlati] - Deutsche Bank

You said on the macro scene you are not seeing much of a slow down but clearly you are still being a little bit cautious in providing the guidance for the rest of the year. From a competitive front are you seeing any challenges that are slowing things down for you?

Dan Fishback

From a competitive perspective we have really seen no change in the competitors. Clearly we feel as we have expanded our story and as we articulated our three-point strategy that further differentiates us from the market we serve but basically no changes on the competitive front.

Operator

Your next question comes from Nabil Elsheshai – Pacific Crest Securities.

Nabil Elsheshai – Pacific Crest Securities

So on the assortment stuff I think you ended up introducing it earlier than when you had talked about at the analyst day. First if you could tell me if there was any strategy or that was just an opportunity that came up. Any color on Cannondales? Do you have it in the marketplace? Do they have customers? Is it an on-demand offering? Just from a financial impact how big are those module deals versus some of the ones you already offer?

Dan Fishback

Let me speak first to the opportunity. More than ever price optimization and coming up with the right price giving the challenges of increasing wholesale costs as well as a cautious consumer is more and more important. The extension of that now to the right price and the right assortment that each store has become front of mind in retailing today.

So when we looked at Cannondale which today has approximately 1,000 individual users in the markets they serve, approximately 12 years of proven experience solving assortment on behalf of the CP trading partners of the retailers, we looked at an opportunity to really minimize our risk and get to market faster by leveraging our platform and our ability to create insights from a tremendous amount of data our retailers deal with every day and then leverage the true incrementality and cannibalization techniques that have been proven by Cannondale, by placing these two systems together you get to market faster, we have a proven science technique on our back end and on their incrementality front and we think it is going to be very well received in the market.

As far as timing, our negotiations with Cannondale proceeded at a pace that was refreshing and we continue to have a really good working relationship with them and are hopeful to expand it candidly.

Nabil Elsheshai – Pacific Crest Securities

Is it a SaaS offering or how is that going to work with your existing product?

Dan Fishback

Certainly we are not going to change our delivery model. Our intention is to deliver it via SaaS model and leverage our back end assets on our software as a service set as well as our network for ultimate distribution to the trading partners.

Nabil Elsheshai – Pacific Crest Securities

Then a ballpark size, if someone paid $1 million for just the Price Optimization Module what would a typical Assortment deal be?

Dan Fishback

I can speak relative to the value today based on the conversations I have had with our customers. Candidly we were really focused and pointed toward Assortment by our customers. We believe based on the analysis we have done that the value proposition of assortment will be equal to or greater than our base price product we have today in the market. It is yet to be seen what those economics will be but I would suspect in the next fiscal year they would be contributors to our business.

Operator

Your next question comes from Bryan McGrath – Credit Suisse.

Bryan McGrath – Credit Suisse

You said you haven’t seen any deterioration. Is it fair to say the customer actions are the same as they were in Q1 as they are now? No major change in customer behavior?

Dan Fishback

I believe that we understand our markets and I think our understanding the market 90 days ago was right on. We were able to adapt our go-to-market story to be relevant for the current environments we serve around the globe. So we see no significant change based on what Mark and I saw 60, 90 or 120 days ago. What I am most proud of and I think what is making the biggest impact in what is a very dicey market is that we understand the market and we have a relevant story that addresses the issues that are front of mind for both retailers and CPT companies around the globe.

Bryan McGrath – Credit Suisse

Looking through your customer list I see companies like Best Buy, Office Depot, Circle K and you don’t see their natural number one competitor like Circuit City, Office Max or even 7-11. I was just wondering is there a natural reluctance on the part of those prospective customers to not want to or just be reluctant to adopt your technology if their number one competitor is already a user?

Dan Fishback

Our observations have been just the opposite. We have seen our largest customers and their competitors in geographies around the globe respond. Certainly in the example of Best Buy they’re largest one-on-one competitor today would be Circuit City and they have got other issues. But candidly we typically see the retail competitors in a geography respond and then candidly after that we see the CP companies that trade with that retailer, subsequently respond.

Bryan McGrath – Credit Suisse

That is the WalMart and then Target example? They don’t have a problem there?

Dan Fishback

That’s a good one.

Bryan McGrath – Credit Suisse

On the long-term deference can you just give us some rough idea of what the average life is there so we can model it accordingly?

Mark Culhane

We don’t comment on the average length of the deferred pool if you will but clearly the long-term piece is not coming in the next 12 months which is why it is long-term. The other thing I would point out is we have said our CP deals are all predominantly one-year deals to predominantly that deferred revenue is related to retail transactions and generally our retail transactions have consistently been in that 2-3 year length of term. So I think that gives you a good idea of how and when that long-term deferred will come out.

Operator

Your next question comes from Ariel Sokol – Wedbush Morgan Securities.

Ariel Sokol – Wedbush Morgan Securities

You have the Assortment and Loyalty Marketing Optimization modules where do you go from here from a product roll out perspective? What other modules are you thinking about adding to your product portfolio?

Dan Fishback

We envision DemandTec being the system of record for understanding the customer or the consumer. Just like bulk manufacturers, CP companies and retailers alike have systems of record to maintain and manage products in their distribution and their unique characteristics. So we look at any opportunity to further leverage our scientific understanding of being the system of record for that consumer and then the business process that would interact with that be it marketing, be it assortment, and be it space.

I would see continued expansion in any business process that is used to understand the consumer for purposes of merchandising and marketing and then ultimately the distribution of that functionality to the trading partner of the retailer based on the retailer’s definition of collaboration which might be different for a Safeway versus Kroger versus WalMart versus Target.

Certainly we are enthusiastic that we understand. We think we are in a unique position in that we are seeing solid performance in Q1. I believe we understand our market. Our sales and marketing execution was strong in the quarter and certainly we think that given we deliver these services via software as a service construct with a network it makes us a unique offering in the market we serve.

Operator

Your next question comes from Greg McDowell – JMP Securities.

Greg McDowell – JMP Securities

Can you just briefly address how you may or may not have changed your go-to-market message versus a year ago? Are you selling any differently? Are you doing more pilots?

Dan Fishback

When I speak to go-to-market twenty years of experience and ebbs and flows in demand for technology one of my take-aways is the relevant message for the executives who are going to sponsor the acquisition of technology must be on the mark. Over the last couple of years we have basically sold into a market where without fail quarter on quarter the consumer showed up and spent more money than before, inflation has been relatively tame. The last three to six quarters we have seen inflation in some basic commodities like milk and eggs that dwarfed the last ten years.

So certainly over the last 9-12 months we have seen a tremendous increase in wholesale costs and subsequently a more cautious consumer, particularly in the states. So the relevant message is how to I arbitrage those cost increases to my consumer if I am a retailer or to a manufacturer or my retail partner in such a way that I can maintain loyalty, capture share from my competitors and in many cases if you look at our customers they look at economic slowdowns as an opportunity to gain share. So being relevant to inflation and a weaker or less confident consumer and how we can help arbitrage that to drive predictable sales and margin has really been a key message. We have seen no material change in how our customers are buying or the size of the deals or the way we propose them, if you will.

Operator

Your next question comes from Keith Weiss – Morgan Stanley.

Keith Weiss – Morgan Stanley

The first thing I wanted to ask Dan was you had a quarter and a couple of months under your belt of taking a more direct sales leadership role with John Crouch leaving back in April. I’m just wondering is that more direct contact with the sales leaders in the regions is that working out as you expected. Are you getting the better execution you expected from that change?

Dan Fishback

The way we are organized today is not unlike technology companies that I have worked for in the past. The theaters of operation report directly to me as the CEO so you have Asian Pac, the America’s and then certainly you have got the EMEA region you’ve got today. So that is not unlike what I have seen in the past. Certainly there is a level of transparency that I have now that I didn’t have before which I think has been good.

Certainly the ability to have a strong management team at the sales level, which John should get credit for that he built, and certainly having key executives in Mark and Bill Phelps to manage the operations and G&A functions give me the opportunity to really dive into it but I would say net I have been pleased by the energy and competence of our sales leaders around the globe. Candidly I think we were able to move our messaging and our sales execution in a matter of months and maybe that would have taken a little bit longer but that is one layer of management and I am very pleased with the execution of the team.

Keith Weiss – Morgan Stanley

I was wondering if you could perhaps give us an update on headcount in terms of sales headcount, what you are feeling out there right now as well as the overall headcount of the company.

Dan Fishback

Seventeen folks on the sales side is pretty consistent with where we were last call and we are around 270 people today.

Keith Weiss – Morgan Stanley

Any significant changes or any developments with your partnering strategy? Anybody doing better with you or doing worse with you?

Dan Fishback

Certainly we are very enthusiastic about the liquidity or volume on our DemandTec Trade Point Network. Today with our retailers and their trading partners and we are certainly making investments like Funds Trackers and additional applications to generate revenue on that network and add services as well as the announcement we made with partners to add to that network.

But we continue to see our traditional, significant partners, the Accenture’s, the IBM’s and the Nielsen’s of the world continue to contribute around the globe and that is consistent but I would say from a partnering perspective the DemandTec Trade Point Network partner program is the most exciting part…and certainly the announcement we made around Precima and the leverage of being able to drive promotional marketing activities on a one-on-one basis to our retail customers is real exciting as well.

Operator

Your final question comes from Laura Lederman – William Blair.

Laura Lederman – William Blair

If you add together what happened last quarter in Q4 which felt like deals slipped out of that versus this quarter feeling better than expected, if you add that together are things in line with what you would have thought maybe 9 months ago or still behind if you add the last two quarters to go? On a related question earlier you felt very comfortable with the ability to add 8-12 new customers this year. Are you still comfortable with that?

Dan Fishback

We certainly are comfortable with the guidance and the slight increase in our guidance for the fiscal year. We think we are…we feel comfortable with our target of 8-12 significant retailers around the globe as well. We have a lot of confidence that we understand our market. We can’t do anything about the economic environment around the globe but we certainly can be relevant to our retailers. We have great customers that are eager to tell us what things they need. I think the DemandTec Assortment Solution would be a case in point there. So we are optimistic we can work with our great customers to help them gain share for a competitive advantage going forward.

Laura Lederman – William Blair

Can you also give us a sense of Cannondale and what impact that has on revenue or earnings for the year and did that impact at all the change in guidance?

Dan Fishback

I wouldn’t expect a significant contribution in this fiscal year. Certainly in the next fiscal year we are pretty optimistic about the value it could drive for the corporation. This is front of mind. In today’s world price optimization as well as the optimization of what items should be at what shelf at what store is very, very important not only for driving consumer and customer behavior but also for efficiencies back in the supply chain to simplify just the assortment mix of goods, etc.

Mark Culhane

The Cannondale purchase is not what has driven up our guidance. I think we are pleased with the sales execution we have seen. We are pleased with the health of our sales pipeline and how things are moving through with that and we are pleased with the value proposition that our products offer to our existing customers, because our existing customers represent a great opportunity for us as well as prospects alike.

Dan Fishback

Just as a follow-up, we have great customers that are not bashful about giving us input. So certainly we work with them before we made the acquisition of assets from Cannondale and Associates and it would be Mark and my choice going forward if at all possible to acquire assets versus companies.

Operator

That concludes our question-and-answer session for today.

Dan Fishback

Thank you again everyone for joining us today. In summary, our first quarter was a solid start to our fiscal 2009. As a leader in the consumer demand management market we believe we are positioned to leverage our investments in our one-of-a-kind science based solutions to deliver solid revenue growth, consistent double digit cash flow margin and expanding non-GAAP gross margins and operating margins in fiscal 2009. From a long-term perspective we believe we are in the early stages of a large market opportunity. We are confident in our three-point growth strategy, strong competitive position and proven value proposition. We look forward to updating you on our next quarter’s conference call. Thank you.

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