Good day, and welcome to the Bazaarvoice Fiscal Third Quarter 2014 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Linda Wells, Director of Investor Relations. Please go ahead..

Good afternoon, and welcome to today's conference call to discuss Bazaarvoice's financial results for the third fiscal quarter of 2014 ended January 31, 2014. I'm joined today by Gene Austin, our Chief Executive Officer and President; and Jim Offerdahl, our Chief Financial Officer.

Following the remarks from Gene and Jim, 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 of our results for the third fiscal quarter of 2014 was issued earlier today and is also posted on our Investor Relations website.

Please remember that certain statements made during this call, including those concerning the business outlook and guidance, growth plans and opportunities, potential acquisitions, outlook on legal matters, sales execution and our 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 Factor section of our Form 10-K for the fiscal year ended April 30, 2013; our Form 10-Q for the second fiscal quarter 2014; and our form S-1 filed with the SEC on July 12, 2012, as well as other documents that we may file with the SEC in the future.

Should any of these -- 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.

In addition, forward-looking statements are based on currently available information and we undertake no duty to update this information. Additional cautionary language regarding these forward-looking statements is further described in today's press release.

Finally, some of the numbers that we will discuss 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.

I would now like to turn the call over the Gene..

Thank you, Linda, and thanks to all of you for joining us on today's call. The third quarter was an eventful quarter for Bazaarvoice, as we successfully transitioned to a new CEO and completed another chapter in the lawsuit filed by the Department of Justice.

At the same time, I was pleased with the overall progress we made in executing our business as we produced our highest sales quarter of the year, drove strong new client growth, greatly improved our dollar churn and exceeded both our revenue and earnings guidance.

Today I will provide you all with the latest update on the DOJ process, as well as review our financial results for the third quarter and highlight the operational improvements we have made across the organization. We were disappointed and frustrated by the court's decision in the DOJ case.

However, despite the result, we have transitioned to the remedy stage of the litigation. As you may know, on February 12, the DOJ filed a proposed motion for judgment calling for a wide range of actions, including among other things, a divestiture of the PowerReviews business. Earlier today, we filed our opposition to the DOJ's brief.

In terms of next steps, as noted in the court's scheduling order for the remedy phase, the DOJ's reply brief is due by March 12 and a remedy hearing is scheduled for April 2.

In light of the potential outcomes discussed in the briefs, we have been in discussions with potential divestiture buyers of PowerReviews and have received significant interest from multiple parties.

In the event that we divest the PowerReviews business, we are hopeful that we will quickly be able to reach an agreement on terms acceptable to the potential divestiture buyer, the court and us.

At the same time, we are evaluating whether to appeal the ruling, and that decision will depend, in large part, on the outcome of the remedy phase of the trial.

I want to reassure our investors that we have the right leadership team in place to both manage a successful remedy in our lawsuit, as well as drive improved overall execution in our business.

While the possibility of divestiture would require some of management's time to oversee a successful transition of customers to a new organization, I am confident that we can do so in a timely manner.

Regardless of the final remedy, we remain steadfast in our focus on improving our operating metrics and increasing the company's overall growth trajectory. We commented on our last earnings call that while growth was our top priority, we wanted to make progress towards profitability and positive cash flow in fiscal year 2015.

Now, should we move forward with the divestiture of the PowerReviews business, our progress on profitability and operating cash flow could be pushed out.

That being said, I want to stress the fact that our business has made steady progress during the last 3 quarters that I have been with Bazaarvoice and we are still on track to resume accelerating top line revenue growth some time in fiscal 2015.

Growth remains the #1 priority for our business, and we are confident that we will achieve increasing revenue growth rates because of our improving sales results, our overall improved management of client retention and dollar churn, our roadmap of innovation and the growth and excitement that our customers have around our network.

Now let me turn to our third quarter financial results. Revenue for the quarter was $48 million, above our guidance and represented a 12% year-over-year growth rate. Adjusted EBITDA was a loss of $1.2 million and our non-GAAP loss was $0.04, both better than our guidance and our best this year.

Overall bookings for the company were the highest of our fiscal year. And net bookings, the difference in sales and churn for any given period, were up significantly from a year ago. I was particularly pleased with our sales performance in North America where we had another strong quarter for both enterprise and our small and medium business teams.

Not only did we post our best bookings quarter of fiscal 2014, but we signed a record number of new customers during the quarter. To date, we are on track to significantly accelerate the pace of new client acquisitions as compared with 2013. Another highlight of the quarter was a large enterprise license agreement signed with a Fortune 50 company.

This new contract is worldwide in nature and represents a significant cross-sell that could total an incremental $2 million to $3 million in revenue each year for the next 2 fiscal years. Other great customer expansions came at JPMorgan Chase, J.Crew, Pfizer, Sony Europe and Argos, to name a few.

And new customer wins of note were Shell Oil and McAfee. Finally, our European team posted its best quarter of the year, as we are beginning to see our investment in talent and leadership pay off overseas.

We talked at length about client dollar churn in our last couple of calls, and I outlined the many initiatives that we have put in place to drive stronger client retention.

In the third quarter, we saw a significantly improved dollar churn compared to the second quarter, which to me indicates progress in overall customer satisfaction and that our initiatives are beginning to kick in.

While we continue to expect quarter-to-quarter variability, dollar churn will remain a focal point for us moving forward, and I'm very pleased with our performance this quarter. Launches for the third quarter were 75, which is down from 90 in the previous quarter. I believe this lower number is driven more by seasonality than anything else.

During the third quarter, many of our clients are reluctant to make changes to their websites due to the holiday shopping season. And as a result, many implementations get pushed to the last month of the quarter and we simply ran out of time. I do expect launches to be much stronger in the fourth quarter.

Our media business posted a better-than-expected third quarter due to a greater volume of ads served and the availability of additional inventory from our retail customers. Media is on pace for a solid growth -- for solid growth this year, but we would like to see the results go even higher.

Connections added over 200 new brands to our network, which now totals over 2,000. We continue to be very pleased with the momentum since Connections quickly adds brand and allows them to interact with consumers across our retail network by answering questions or responding to review.

As Connections's customers experience the power of our network, they become prospects for Conversations. And in fact, we saw conversions to Conversations take a nice jump in the third quarter. Total Bazaarvoice customers now stand at over 3,300 globally. Our third quarter encompasses the holiday shopping period.

And once again, the value of the content generated on both our retail and brands customer sites was very evident. Impressions grew over 50% in the third quarter to approximately 66 billion, and we believe our content influenced 552 million average monthly shoppers.

Black Friday and Cyber Monday traffic also grew over 30% year-over-year, and impressions came at roughly 1.3 billion on both days. This strong growth both indicates the continuing growth of online in the retail experience, but more importantly, the role Bazaarvoice plays in the shopping experience.

During the quarter, we also launched Bazaarvoice Authentic Reviews Trust Mark. The trust mark is our assurance that each and every review has passed our authenticity standards. When a shopper sees our Trust Mark, they can be assured that the content has been safeguarded by sophisticated fraud detection technology and industry-leading best practices.

To date, Trust Mark is live in a number of organizations including Sam's Club, Lowe's, Samsung and Whirlpool, and the feedback has been very positive. We are in the early stages of our marketing plan to end fake reviews and expect the Trust Mark to lead the way.

I might add that we are leading this same initiative in Europe with the recent AFNOR Certification that we received in France. In closing, I'm very happy with our progress to date in improving the operating results for our company.

While more work remains, we are well-positioned with strong products and technologies, a large global opportunity and some of the best people I've had the opportunity to lead. I look forward to sharing our ongoing progress with you in the coming months. And now, I'd like to turn the call over to Jim..

Thank you, Gene, and thank you to everyone who joined the call today. As a reminder, we are on a fiscal year calendar ending April 30. So today, we are reporting results for our third quarter of fiscal 2014, which ended January 31, 2014, and all accounting periods discussed will be fiscal.

Unless otherwise noted in my remarks, I will cover our non-GAAP operating results that correlate with adjusted EBITDA as a measure of operating profitability, including discussions of costs, revenue and operating expenses.

Investors should refer to our press release for a more complete review of our financial results, including a reconciliation of GAAP to non-GAAP operating results, comparative information to prior periods and key operating metrics.

I will first provide commentary on our third quarter 2014 financial performance, and then we'll conclude with our outlook for the fourth quarter and full fiscal year 2014. As Gene mentioned, we achieved total revenue of $48 million in the third quarter, up 12% year-over-year, exceeding the high end of our guidance range of $46 million to $47 million.

We achieved SaaS revenue of $45 million, up 10% year-over-year. Net media revenue was $3 million, up 53% year-over-year on an as-reported basis and 47% on a pro forma basis. As a reminder, our media revenue is quite seasonal, with the majority of revenue achieved during the months of November and December.

Adjusted EBITDA for the third quarter was a loss of $1.2 million, a significant improvement from a loss of $5.5 million in the third quarter of last year and better than our guidance range of $2 million to $3 million.

As a percentage of total revenue, our total -- our adjusted EBITDA loss continues to improve year-over-year, driven primarily by higher revenues and improved operational efficiencies. Our non-GAAP net loss per share was $0.04, better than our guidance range of a loss of $0.05 to $0.07.

We launched 75 clients in Q3, up from 53 during the same period last year, but a decrease from 90 that we reported in Q2. The sequential decline, as Gene noted, was primarily due to seasonality, which is consistent with prior years.

Given that we've signed a record number of new clients in Q3, we expect to see an increase in launched clients during the fourth quarter. Client losses were 56, resulting in a Q3 client retention rate of 95.7%, which is slightly below our average over the last 6 quarters.

The slight decline is primarily driven by an uptick in the number of PowerReviews clients lost, as well as higher merger and acquisition activity in our client base. Note that we continue to retain the revenue from the clients involved in that merger and acquisition activity, even though we technically lost a client count.

As a result, we added 19 net new clients in Q3, compared to 22 in Q3 of last year and 50 last quarter. As expected, our dollar churn improved significantly from Q3 compared to Q2, as we started to see some of the benefits from increased focus on churn throughout the organization.

While we continue to expect quarter-to-quarter variability of our dollar churn, we are very pleased with the performance in Q3 and churn will remain a focal point for us moving forward. We ended Q3 with 1,308 clients with annualized SaaS revenue per client of $139,000, similar to the last 5 quarters.

We continue to expect this annualized revenue per client to decline in the future, as we concentrate on adding larger numbers of new clients and initial pricing is lower than our company average. We view this as healthy for our network and consistent with our land-and-expand approach.

We achieved gross margin of 69.7% in Q3, up 140 basis points from the same period last year. Our gross margins benefited from the increased mix of net media revenues, continued economies of scale and more efficient implementations.

On a sequential basis, however, gross margins were lower than Q2, as we incurred higher hosting costs associated with the increased number of impressions during the holiday season. Gross margins are expected to be lower in Q4, as we expect seasonally lower net media revenue, as well as the continued large number of impressions.

Sales and marketing expenses were $19.9 million, and represented 41.4% of revenue this quarter, as compared to $19.3 million or 45.2% in the same period last year. Sales and marketing expenses were higher on a year-over-year basis due to a higher number of quota-carrying sales reps, as well as higher commission expense for media.

R&D expenses were $8.5 million, representing 17.7% of revenue in this quarter, as compared to $8.4 million or 19.6% in the same period last year. G&A expenses were $6.3 million and represented 13.2% of revenue in this quarter, as compared to $7 million or 16.4% in the same period last year.

We continue to gain operating leverage as a company and we achieved annualized revenue per average employee of $241,000 in the third quarter, up 11% from the same period last year. In addition, our annualized gross profit per average employee improved $168,000, up 13% from the same period last year. We ended the quarter with 794 employees.

Now let's turn to the balance sheet. As of January 31, 2014, we had $57.5 million in cash, cash equivalents and no debt. To improve our financial flexibility, near the end of February, we drew down $27 million under our existing $30 million revolving line of credit.

We ended the third quarter with DSOs of 84, up from 61 days in Q2 and up from 65 days in the third quarter of 2013. This sequential increase in DSOs was primarily due to higher mix of annual billings and seasonally higher media billings, which, note, are built on a growth basis while we record revenue on a net basis.

While our DSOs are higher than desired, note that our receivables aging improved sequentially in Q3 and also note that, to date, so far in Q4, we have already collected $20 million. As such, we expect DSOs to improve to a more typical range in Q4, as we continued to collect a large amount of Q3 billings.

Our deferred revenue increased to $55.7 million as compared to $52.0 million a year ago and $53 million in the second quarter. The increase reflects the expected increase in the mix of annual billings in Q3, which has been typical in Q3 and Q4 of our fiscal year.

We continue to believe that measuring changes in deferred revenue is not a good proxy for new bookings during the quarter, as we typically have a varying mix of billing frequency with average upfront billings of less than 1 year.

Further, given our typical 3- to 5-month implementation cycle between the booking of a new client and the day at which we launch a new client and begin recognition of revenue, the value of any new bookings closed during the quarter may not be reflected in deferred revenue until subsequent quarters.

As a result, total contract value of new bookings is just not discernible in deferred revenue. From a cash flow perspective, cash used from operations in the third quarter was $19 million, of which $6.2 million was related to the DOJ case and related shareholder derivative litigation.

This compares to cash used from operations of $12.6 million in the second quarter of 2014, of which $8 million was related to the DOJ case and related shareholder litigation. This sequential increase in operating cash used was primarily due to the increase in receivables because of much higher billings in Q3 that I just noted.

We expect operating cash used to improve significantly in the fourth quarter as we collect those higher billings and as we are now incurring less DOJ-related expenses post trial.

As an FYI, if we were to choose to appeal, we would expect related legal costs to be less than $5 million over the course of the appeal process, which, of course, can take years. I want to note that we believe we have a strong balance sheet and are well-capitalized.

Over 50 -- or well-capitalized with over $57 million in cash and cash equivalents as of January 31; our February drawdown of $27 million under our revolving line of credit; our expectation of significantly better cash flow in Q4; and our expectation of proceeds from the potential divestiture of PowerReviews. Turning to guidance.

I'd like to point out that since we continued to be in the remedy phase of the DOJ suit, we are continuing to include PowerReviews's revenue expense in our guidance until we have more clarity on the final judgment. Now our guidance, starting with guidance from the fourth fiscal quarter of 2014.

We expect total revenue to be in the range of $44.9 million to $45.9 million, up 5% at the midpoint of the range. SaaS revenue is expected to be flat to down slightly from Q3, given the relatively lower launches in Q3 and the higher levels of dollar churn that we experienced earlier in the year. We expect to return to sequential growth in Q1.

Net media revenue is expected to decline sequentially from Q3, given the seasonality previously mentioned. We expect adjusted EBITDA loss to be in the range of $5 million to $6 million. Non-GAAP loss per share is expected to be in the range of $0.10 to $0.12, based on 76.8 million weighted average shares outstanding.

Now for guidance for the full year of fiscal 2014. We are increasing the midpoint of our full year revenue guidance range, which is now $183 million, to $184 million, which is an increase of 14% year-over-year at the midpoint.

Given our Q3 media revenue performance, we now expect media revenue to grow in the 35% to 40% range this year on a pro forma basis. With regard to adjusted EBITDA, we're improving the midpoint of our full year guidance range, which is now a loss of $12.5 million, to $13.5 million.

Net GAAP -- non-GAAP net loss per share is expected to be in the range of $0.25 to $0.27 based on 75.5 million weighted average shares outstanding. In summary, we're pleased with our financial results for the third quarter and the progress we're making operationally on many fronts.

Also, given our improving sales results and our improving dollar churn, we continue to expect our revenue growth rates to begin to reaccelerate some time during fiscal year 2015. And lastly, we have a solid balance sheet and the right management team to lead us through the next phase of growth for Bazaarvoice.

Before I turn the call over for questions, I would like to remind everyone that we will be presenting at the Morgan Stanley Conference tomorrow, March 5, in San Francisco, and the Piper Jaffray TMT Conference in New York City on March 12. With that, operator, please turn the call over for questions..

[Operator Instructions] We'll go first to Greg Dunham with Goldman Sachs..

First off, I want to hit on dollar churn, because that was a source of strength here, relative to the past couple of quarters. You mentioned it on the call.

Perhaps, could you expand a little bit on what specifically you're doing to improve dollar churn? And do you feel that you've put the mechanisms in place for that to improve going forward, next quarter and all through FY '15?.

Greg, the reason why we commented about the strength of dollar churn is not only the improvement that we saw sequentially from Q3, Q2, but we also saw a nice year-over-year improvement from Q3 of last year. So -- and we had a really strong churn result for the third quarter.

And really, to -- the reason why we're starting to see improvement is because we've taken a very holistic approach to the client -- a customer's life cycle. It begins in the sales cycle, we're setting great expectations and preparing the customer for how they can make the results superior once they deploy Bazaarvoice.

Our implementation teams have revamped the entire implementation process. And on the back end, we are managing customers much better, everything from our methodology, from our client services team, all the way through investments in technology that allow us to see ahead of time.

Key metrics within each customer that will alert us that a customer may be going in the wrong direction, if you will, and allow us to go in preemptively and take corrective actions so that they can get back on track. As anyone knows a SaaS business, it's very important to manage clients -- the client churn area proactively.

And that's something that we've put in place over the last 9 months. I feel very good about where we are at this point..

All right, that's helpful. And then maybe one clarify -- I mean, clarifying factor on the metrics. If I look at the new enterprise client additions, it's a net number of 19. You talked about the 75 launched and you talked about a record -- a number of new clients signed in 3Q. I guess, talk through the puts and takes there.

And is the number of new enterprise clients, on a net basis, just not a great leading indicator on the number of signings in that quarter?.

So the number of launches, less the clients that left us, is the net new number. So what we signed is not a part of that equation. So what we signed are customers we expect to be in the pool of launched candidates for the next quarter. So the record number of clients we signed in Q3 are launch candidates for this quarter that we're in right now.

Okay? So we did see a slight uptick in clients that we lost. As Jim outlined, we had a good handful of clients that became part of merger and acquisitions. That revenue is still part of the company, but we lose the logo, if you will, the client name. And then we did see a slight uptick in the PowerReviews base from a number of client churn.

And so that -- and we've balanced that with launches of 75, which is up from Q3 significantly of last year, but down sequentially. We had a little bit -- we had lower net client addition than we've had in past quarters..

Greg, this is Jim. The good thing is, as Gene indicated, we had -- we're signing new accounts at a record pace. And over the next quarter or 2, that should start showing up at launches.

And our general trend of launches has been up until this last quarter, and a lot of that is seasonal because of retailers and brands just don't want to mess with their sites too much over the holidays..

Right. And I guess the follow-up real briefly. I mean the M&A component, you don't lose the revenue, but you actually -- it hurts you on the number of clients that you actually have.

I mean, how significant was that M&A component to that churn?.

Yes, it was not all that significant. It was just a little bit -- we always have a few of those, but we had a few more than a few this last quarter..

Single digits..

Yes..

Our next question comes from Jennifer Lowe with Morgan Stanley..

It's actually Jon Parker calling for Jennifer. I guess, first, I wanted to sort of dig in a little bit to the question that's on everybody's minds. Given the timing of the DOJ trial, you talked about how you filed your opposition to the brief earlier today and that their reply, I guess, is due back.

Can you talk a little bit about, first, sort of what's contained within that opposition and sort of the summary of your views? And, I think it'd be appreciated, you also mentioned a number of companies and conversations you've had with potential parties in the event of a divestiture of the PowerReviews business.

Can you maybe talk a little bit about, at a high level, obviously, the type of companies that are expressing an interest? Large companies, small companies.

So I think one of the concerns people have had is, in the event that you have to divest that business that potentially gets sold to our larger party, let's say, that has a lot of money that they choose to invest in the company, ends up becoming a bigger competitor for Bazaarvoice over time, so I think people might be interested in trying to better understand what sort of that could theoretically look like..

So I guess, the first thing I'll do is respond to -- give you a little bit of color of our filing today. So the DOJ filed, back on February 12, with a long list of requirements. One of those was divestiture, but they went way beyond divestiture.

And so the -- our filing today recognizes that divestiture is something that may need to happen, but we are -- we take a lot of issue with the other points in the DOJ's filing. We think divestiture, as a remedy, may be a reasonable outcome. But again, we think the DOJ's request was far-reaching and something we could not agree with.

Now, the parties that have expressed interest are a wide range of interested parties. The -- I think the most serious folks are in the ratings and reviews business and so I'll leave it at that. I'm not really at liberty to comment about the size of the organizations because the parties' names are confidential.

But at the same point, I think when I look at the list of interested organizations, it is a good outcome for the customers in the PowerReviews arena. It's a good outcome for the marketplace. And I think it sets up a reasonable environment for everybody moving forward..

Okay, great. That's helpful.

And then you did note some increased churn on the low end of your business coming from sort of that PowerReviews business, does that impact that potential divestiture scenario or remedy at all? And what's driving that? Are those customers that are concerned about a potential change in their provider? And how should we think about that over the next couple of quarters?.

Well, I would classify the churn in the PowerReviews -- I mean, just like any organization, churn fluctuates quarter-to-quarter. So it was a little higher this quarter, but I would not say that it was abnormal for PowerReviews. I mean, PowerReviews is a SaaS business. Those customers have been reading the headlines on this trial since it began.

And you can imagine, they churn. The -- I think, at the same time, the most important thing that can happen is a quick solution to the situation. And we have been encouraging the court and the DOJ to move as quickly as possible because it's -- the people losing in this situation are the PowerReviews customers.

And there's nothing we can say or do to the PowerReviews customers right now. The most important thing is to reach a remedy as fast as possible..

Great. And then last, I think it's certainly really encouraging the large deal that you called out with the Fortune 50 customer and sort of the cross-sell that you saw there.

Maybe talk about sort of how they were using -- how were they using the platform before? How are they thinking about going forward using it? Sort of what they've added on? And then I'm also curious about, and I don't know if it's related to this deal or not, but you have spoken about trying to better monetize the platform in some instances by moving to -- from a fixed-fee arrangement to something more variable and performance-based.

I'm sort of curious, is that -- given sort of the range that you said, from that being $2 million to $3 million, is that sort of -- a part of this deal or not? And how are you thinking about moving more towards variable or performance-based deals going forward?.

Sure. I'll talk about the enterprise deal for just a second. I think, as you can imagine, a Fortune 50 organization is very large on a worldwide scale and, frankly, has most of the organization working very independently on a worldwide basis.

However, the organization has found so much value from using Bazaarvoice and the content that their consumers are generating about their products that they are basically issuing a company-wide program that says, "We want everyone to standardize on Bazaarvoice for ratings and reviews because of the ease-of-use, the power in the product, the network that we provide and all of the compelling value that Bazaarvoice has brought to that organization." In terms of pricing, yes, we continue to be -- to focus on how to monetize the growth on our network.

And we're having a lot of conversations about how to do so. As you can imagine, there are a lot of things to cover off when you look at pricing changes of this magnitude, where we go from a fixed-fee to some type of hybrid, which would be fixed-fee and variable. As I indicated in the last call, we've been running a number of experiments in this area.

We're starting to get some decent data back, and we're using that in our planning process as we look forward going forward. So we're excited about the network growth, it's just outstanding.

The amount of content in the network is very strong and the commitment by worldwide organizations on Bazaarvoice is very reassuring of the strength of what we provide as a business..

We'll go next to Stephen Ju with Credit Suisse..

So I think you cited a seasonal 4Q, the usual factor is on the media outperformance here.

Just thinking about this longer term, are your retailers incrementally more comfortable about showing advertising on their pages? Is there any change in stance there, either positive or negative?.

Yes, Stephen. We have definitely seen, in the last few months, more interest by retailers. So as we indicated in the last call, the slowness of retailers to adopt -- to become -- to sell inventory on their sites was a concern, and the reason why we were cautious about media growth.

And that has taken 1 or 2 clicks in the positive -- more positive direction. We're not ready to call it a force yet, but I've been encouraged by the movement forward in that area. That being said, as Jim mentioned, Q4 will be -- because of the seasonality of media, we will see a decline in media revenue in Q4..

We'll go next to Mark Murphy with Piper Jaffray..

I think most of my questions have been asked at this point. But, Gene, I wanted to try to clarify one of the comments that you made. You said you have experimented, I think, with variable or hybrid pricing and that it's been in the beta test phase. I'm just curious.

Have you been able to sign any new clients on variable pricing? Whether it's been tied to the number of reviews or a number of uniques or a number of impressions or anything else.

Is anything -- is there anything that's been contracted recently that you would call variable or hybrid?.

Yes. I mean, Mark, in the beginning of the year, we consciously launched an experiment, I'll call it, and all of the deals that we did in this experiment were new to my knowledge. I might be wrong, but I believe most, if not all, were new. And they ranged all over the map in the types of variability. Some were content-related, amount of content.

Some were impressions-driven and some had even other types of variability to it. And those -- and some had a hybrid approach. So I would tell you, though, that they're not large deals. They're more in the small, medium business arena.

So -- but they give us a pretty good indication of the value and also what areas -- what leverage we have at our disposal as we look at it..

If the C back [ph] comes back positive and the customers like what they're getting out of that arrangement, could there be a future opportunity to begin to sprinkle in some of the variable pricing at renewal time, for more of the mid- to large-sized customers that you have?.

Yes, most definitely. But I would tell you that I don't believe we would switch a fixed-fee relationship to an all-variable relationship.

I think what you would see is that we would have a fixed-fee but once they hit a certain level of performance, perhaps it's impressions, that we participate in the overage of those -- so it was x billion and they got to that amount and they went higher, we would participate in the over-performance from an impressions standpoint.

So I would call it more of an overage model than a variable pricing model, just to be clear at this point..

Okay, fair enough. And then, Jim, I wanted to ask you. I believe when it comes to your churn rate disclosures, the numbers that we see or the numbers that we're able to calculate are really tied to the customer count. And we saw that there was a little increase there that, I think, you've walked us through.

And you're speaking to -- or you've begun speaking to, recently, this concept of the dollar churn rate.

Is there any consideration for changing the disclosure there to actually give us a dollar churn rate over time so that we're able to quantify that?.

Mark, the answer is that's a likely -- we're considering that for fiscal '15. We haven't decided fully. And if we were to decide, it could be qualitative during the year and more quantitative after -- a year-end type of thing. So we're considering it..

Okay. And then -- that's helpful. Gene, coming back to you. The M&A in the marketing software arena, obviously, it's been running at a frenetic pace.

I'm just curious how you think through, I guess, how you would protect against that from a -- you're trading at a valuation that's a little over 2x sales, which is -- it's towards the lower end of the SaaS software spectrum.

And I think, especially seeing that you're reporting a wide range of parties that expressed interest in PowerReviews on a, presumably, on a fairly compressed timeframe, it would seem to speak to the idea that there's M&A interest, specifically and precisely where you play.

So just kind of a high-level question on maybe how you would protect against that..

Mark, that's a question I don't think I can fully answer. I will tell you that the interested parties in PowerReviews are not of the size that you may be thinking at this point, right? They are much more geographic or regional in nature. And so I'll just leave it at that..

Okay, that makes sense. And then I wanted to ask just one last one.

Could you clarify the commentary that you expect increased revenue growth rates some time in FY '15? I'm just -- I don't know exactly how specific or how general of a comment you wanted that to be, but I guess I'm wondering, increase above what? Do you mean it would be increased above the 12.5% level that you just reported? Or do you mean something else with that comment?.

Well, let me answer it in a couple ways. So first of all, as we've said, we believe Bazaarvoice can achieve 15% to 25% revenue growth over the long term. And what I -- what -- as you all note -- have noted, our revenue growth rates have been decelerating each quarter. We came in at 12% this quarter. We've guided to single digits next quarter.

And what we're saying is we expect that trend to reverse some time in 2015. We're not ready to call it yet, but the reason why we believe this is -- we're on our way to that point is because of the improving operating metrics we've seen quarter-to-quarter, month-to-month in our business.

So having done this for many, many years in SaaS, what you -- how you perform today is what you end up -- how you end up in revenue and operating results tomorrow.

So the changes we put in place to improve the overall performance of Bazaarvoice are taking root, and we expect that to yield fruit from an accelerated growth rate standpoint sometime next year..

[Operator Instructions] And we'll go next to Brendan Barnicle with Pacific Crest..

Gene, you made some nice progress with enterprise sales and across the organization.

As we start to think about what your plans are for the sales force going forward, what are you thinking about where would you look to add and build out the team?.

Brendan, I have been -- we certainly had some good enterprise results, and I think I'm excited about our product portfolio to expand our share of wallet in enterprise. So that's one. Number two, the brand business, in general, has had nice growth all year, so I'm very excited about that.

And I would expect us to continue to focus on brand as a business. And for those of you that obviously know us having a strong retail presence, they're so synergistic that, as we add more brands, the retailers are happy because they get more and more content.

So it's really what we do to drive more brands only makes our retail network that much happier. We have seen great success in the small and medium business arena. Jim talks about our revenue -- our average revenue per client will probably dip -- continue to dip.

Well, in my opinion, that's a great thing because we are signing up some nice medium-sized, even small-sized, brands that I think have a great opportunity for us going forward. So there's no real one area. We've added a lot of capacity. We will add a lot of capacity this year from a sales standpoint.

Next year, it will be refinement and we probably won't add as many heads next year as we have this year. But we -- I still think we will have the ability, both from products, productivity improvements, et cetera, to add some nice top line bookings growth next year..

Great. And then, Jim, you mentioned in your prepared comments about trying to draw down the line of credit to give you a little more flexibility.

What are the types of things you want to have more flexibly for?.

Yes. I mean, we decided with -- before the full clarity the DOJ remedy to maintain that flexibility by drawing it down to continue to support the business. And between that and the growth of the business, we just want to have that kind of flexibility and to be able to continue to invest..

And we'll go next to Nandan Amladi with Deutsche Bank..

Some of the elements of this question may have already been answered.

But how hard would it be for you to divest PowerReviews in terms of separating out your R&D and sales teams and any sort of data center, those kind of things?.

Yes. It's -- well, this is certainly an area that I have never been through before. So I'm going to have -- but we have looked at it very, very carefully. And divesting a company that's been a part of you for over 1.5 years is no easy matter.

That being said, though, the technology is easily "cleaved off." The customer contracts are, obviously, still on PowerReviews's paper and easy to do.

The staffing and resource allocation towards that business is an area that we would obviously have to work with a potential divestiture buyer on and how that would -- how they're going to staff it, help them with the transition in some ways.

So I don't think it's going to be a "one day we wake up and it's completely done." It's going to be -- have to be a transition of some kind because, frankly, the most important thing here are the customers involved.

And at times, I feel like -- during this process and, obviously, I haven't been involved in the whole thing, but we have lost sight of the customer needs and what's in the best interest of the customers. So as we head into this remedy phase, I'm pretty focused on making sure it goes as well for the customers as possible.

But it's not -- on many areas, Nandan, it's fairly straightforward. In a couple areas, it's less so, and we'll work our way through it. I do want to make sure that the investors realize that I have a team that can pull this off. This is not going to derail the company.

And if divestiture is what lies in our future, we'll make it happen while continuing to make progress as a business..

There are no further questions in queue. At this time, I would like to turn the conference back over to management for any additional or closing remarks..

Okay. Thank you all for attending today's call. We will see many of you tomorrow, here in San Francisco and in New York, and look forward to speaking with you on our Q4 call. Thank you..

This does conclude today's conference. Thank you for your participation..