ChannelAdvisor Reports Second Quarter 2019 Results; Adjusted EBITDA Significantly Exceeds Guidance
Source: Nasdaq GlobeNewswire / 08 Aug 2019 06:45:15 America/New_York
RESEARCH TRIANGLE PARK, N.C., Aug. 08, 2019 (GLOBE NEWSWIRE) -- ChannelAdvisor Corporation (NYSE: ECOM), a leading provider of cloud-based e-commerce solutions that enable brands and retailers to increase global sales, today reported financial results for the quarter ended June 30, 2019.
"We are pleased with our second quarter performance with revenues coming in near the high end of our guidance range and adjusted EBITDA significantly exceeding our guidance range," said David Spitz, Chief Executive Officer of ChannelAdvisor. "We continued to make strong progress with brands and saw particularly good performance from our teams in EMEA and Australia. In July, we also implemented a reorganization of our business to improve efficiency and profitability, which led to us discontinuing our physical presence in China and to reducing headcount in the U.S. We believe these changes will improve our profitability and cash flow, better positioning us to invest in opportunities to expand our brands offering and invest in growth areas, including through potential acquisitions, to drive revenue growth and margin expansion over time."
Second Quarter 2019 Financial Results
- Revenue: Total revenue was $31.9 million for the second quarter 2019, a decrease of 2.2% from the year-ago period. Fixed subscription fees were $25.7 million, or 80.5% of total revenue, an increase of 3.8% from the year-ago period. Variable subscription fees were $6.2 million, or 19.5% of total revenue, a decrease of 21.0% from the year-ago period.
- Gross Profit: GAAP gross profit was $24.8 million, representing a 77.8% gross margin for the second quarter 2019, compared with $25.7 million and 78.6%, respectively, for the year-ago period. Non-GAAP gross profit was $25.0 million, representing a 78.4% non-GAAP gross margin for the second quarter 2019, compared with $25.8 million and 78.9%, respectively, for the year-ago period.
- Net Loss: GAAP net loss was $(1.3) million for the second quarter 2019, compared with $(2.8) million for the year-ago period. GAAP net loss per share was $(0.05) based on 27.9 million weighted average shares outstanding for the second quarter 2019, compared with $(0.10) and 27.2 million weighted average shares outstanding for the year-ago period.
- Adjusted EBITDA: Adjusted EBITDA, a non-GAAP measure, was $3.0 million for the second quarter 2019, compared with $1.1 million for the year-ago period. For a description of this and other non-GAAP measures included in this press release, including their potential limitations, see “Non-GAAP Financial Measures” below.
- Cash: Cash and cash equivalents totaled $49.0 million as of June 30, 2019, compared with $47.2 million as of December 31, 2018. Cash generated from operations was $4.5 million for the six months ended June 30, 2019, compared with $1.0 million for the year-ago period. Free cash flow, a non-GAAP measure, was $2.3 million and $3.0 million for the three and six months ended June 30, 2019, respectively, compared with $(1.4) million and $0.1 million, respectively, for the year-ago periods.
Recent Operating Highlights
- Winning with Brands: Continued to increase the customer base for brands, a key customer segment. Added 28 net new brand customers for the twelve-month period ended June 30, 2019. Brands accounted for 20.1% of the Company’s customer base as of June 30, 2019, compared to 18.3% as of June 30, 2018. Also, continued to expand relationships with existing brands customers. In the second quarter, expanded relationships with notable brands customers including ASICS and Avocado Green Brands.
- Strong Adoption of New Platform User Experience: Approximately 95% of users have adopted the new platform user experience, which launched in April 2019. The new user experience improves the ease of use of the Marketplaces platform serving to support faster time to value, customer retention, and indirect sales channel efforts.
- New Product Launch through Indirect Channel: Commenced a beta of a new standalone Amazon repricer, Elevate, which is expected to commercially launch through the Amazon App Store in the third quarter 2019. This new go-to-market approach, which entails a zero-touch sign up and self-service onboarding, is expected to provide an incremental revenue stream for the Company and a lead source for the direct sales force to upsell the Company’s other products.
- Expanded Supported Marketplaces: Continued to expand customers' reach by increasing the number of marketplace integrations to 142 as of the end of second quarter 2019 from 106 as of the end of the second quarter 2018.
- Improved Average Revenue per Customer (ARPC): ARPC, calculated on a trailing twelve-month basis, was $46,757 for the twelve months ended June 30, 2019, an increase of 3.8% from the year-ago period.
- Number of Customers: Total customer count was 2,715 at the end of the second quarter 2019, compared with 2,829 customers at the end of the second quarter 2018.
In July, the Company executed a reorganization of its operations, which entailed the reduction of approximately 10% of its global headcount and the closure of its physical operations in China. The reorganization serves to streamline operations, consolidate leadership responsibilities, and better align expenses with revenue.
Based on the information available as of today, ChannelAdvisor is issuing guidance for its third quarter 2019 and updating guidance for the full year 2019 from amounts previously provided on May 9, 2019.
(in millions) Q3 2019 Full Year 2019 (updated) Revenue $31.5 - $32.0 $129.0 - $131.0 Adjusted EBITDA $4.0 - $4.5 $17.0 - $18.5 Stock-based Compensation Expense $0.8 - $1.2 $9.8 - $10.2 Weighted Average Shares Outstanding 28.0 27.9
Refer to the "Adjusted EBITDA Guidance Reconciliation" table included with the financial tables at the end of this release for the reconciliation to the most comparable GAAP financial measure.
Conference Call Information
What: ChannelAdvisor Second Quarter 2019 Financial Results Conference Call When: Thursday, August 8, 2019 Time: 8:00 a.m. ET Live Call: (855) 638-4821, Passcode 2690019, Toll free (704) 288-0612, Passcode 2690019, Toll Webcast: http://ir.channeladvisor.com (live and replay)
Key Financial and Operating Metrics
Average revenue per customer is revenue for a particular period divided by the average monthly number of customers during the period, which is calculated by taking the sum of the number of customers at the end of each month in the period and dividing by the number of months in the period.
Number of customers includes all customers who subscribe to at least one of our solutions, as well as strategic partners from which we receive revenue.
Non-GAAP Financial Measures
This press release contains the following non-GAAP financial measures: adjusted EBITDA, free cash flow, non-GAAP gross profit and non-GAAP gross margin. Adjusted EBITDA excludes depreciation, amortization, income tax expense, net interest expense and stock-based compensation expense. Free cash flow is cash flow from operations, reduced by purchases of property and equipment and payment of software development costs. Non-GAAP gross profit and non-GAAP gross margin exclude stock-based compensation expense.
ChannelAdvisor believes that these non-GAAP measures of financial results provide useful information to management and investors relating to ChannelAdvisor’s financial condition and results of operations. The company’s management uses these non-GAAP measures to compare the company’s performance to that of prior periods for trend analyses, and for budgeting and planning purposes. The company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company’s financial measures with other software companies, many of which present similar non-GAAP financial measures to investors, and that it allows for greater transparency with respect to key metrics used by management in its financial and operational decision-making.
Management of the company does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded in the company’s financial statements. In order to compensate for these limitations, management presents non-GAAP financial measures together with GAAP results. Non-GAAP measures should be considered in addition to results and guidance prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables at the end of this release. ChannelAdvisor urges investors to review the reconciliation and not to rely on any single financial measure to evaluate the company’s business. In addition, other companies, including companies in our industry, may calculate similarly named non-GAAP measures differently than we do, which limits their usefulness in comparing our financial results with theirs.
ChannelAdvisor (NYSE: ECOM) is a leading e-commerce cloud platform whose mission is to connect and optimize the world’s commerce. For nearly two decades, ChannelAdvisor has helped brands and retailers worldwide improve their online performance by expanding sales channels, connecting with consumers around the world, optimizing their operations for peak performance and providing actionable analytics to improve competitiveness. Thousands of customers depend on ChannelAdvisor to securely power their sales and optimize fulfillment on channels such as Amazon, eBay, Facebook, Google, Walmart, and hundreds more. For more information, visit www.channeladvisor.com.
Cautionary Language Concerning Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our financial outlook and guidance for the third quarter and full year 2019, potential benefits of our reorganization of operations and expectations regarding our growth and that of the e-commerce industry. These forward-looking statements are made as of the date of this release and are based on current expectations, estimates, forecasts and projections, as well as the current beliefs and assumptions of management. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond ChannelAdvisor’s control. ChannelAdvisor’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in ChannelAdvisor’s Annual Report on Form 10-K for the year ended December 31, 2018 and its Quarterly Report on Form 10-Q that will be filed for the quarter ended June 30, 2019, as well as other documents that may be filed by the company from time to time with the Securities and Exchange Commission. These documents are available on the ‘SEC Filings’ section of the Investor Relations page of our website at http://ir.channeladvisor.com. In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: our reliance for a significant portion of our revenue on sales by our customers on the Amazon and eBay marketplaces and through advertisements on Google; our ability to respond to rapid changes in channel technologies or requirements; our ability to compete successfully against current and future competitors, which could include the channels themselves; our reliance in part on a pricing model under which a portion of the subscription fees we receive from customers is variable, based upon the amount of transaction volume that those customers process through our platform; our reliance on non-redundant data centers and cloud computing providers to deliver our SaaS solutions; the potential that the e-commerce market does not grow, or grows more slowly than we expect, particularly on the channels that our solutions support; challenges and risks associated with our increasing international operations; our ability to align our expenses with revenue; and risks related to security or privacy breaches. The forward-looking statements included in this press release represent ChannelAdvisor’s views as of the date of this press release. ChannelAdvisor undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, these forward-looking statements should not be relied upon as representing ChannelAdvisor’s views as of any date subsequent to the date of this press release.
ChannelAdvisor Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
June 30, 2019 December 31, 2018 (unaudited) Assets Current assets: Cash and cash equivalents $ 49,025 $ 47,185 Accounts receivable, net of allowance of $656 and $652 as of June 30, 2019 and December 31, 2018, respectively 22,634 23,436 Prepaid expenses and other current assets 8,540 9,248 Total current assets 80,199 79,869 Operating lease right of use assets 13,096 — Property and equipment, net 10,675 12,007 Goodwill 23,486 23,486 Intangible assets, net 1,589 1,894 Deferred contract costs, net of current portion 12,369 11,336 Long-term deferred tax assets, net 3,790 4,162 Other assets 845 1,515 Total assets $ 146,049 $ 134,269 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 1,726 $ 1,598 Accrued expenses 11,789 9,358 Deferred revenue 23,174 24,205 Other current liabilities 6,573 3,569 Total current liabilities 43,262 38,730 Long-term operating leases, net of current portion 11,884 — Long-term finance leases, net of current portion — 1,404 Lease incentive obligation — 2,154 Other long-term liabilities 1,104 2,343 Total liabilities 56,250 44,631 Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding as of June 30, 2019 and December 31, 2018 — — Common stock, $0.001 par value, 100,000,000 shares authorized, 28,042,359 and 27,347,115 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively 28 27 Additional paid-in capital 275,442 271,550 Accumulated other comprehensive loss (1,772 ) (1,707 ) Accumulated deficit (183,899 ) (180,232 ) Total stockholders' equity 89,799 89,638 Total liabilities and stockholders' equity $ 146,049 $ 134,269
ChannelAdvisor Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Revenue $ 31,932 $ 32,660 $ 63,506 $ 64,105 Cost of revenue (1) (2) 7,096 6,975 14,625 14,328 Gross profit 24,836 25,685 48,881 49,777 Operating expenses (1) (2): Sales and marketing 14,092 15,974 28,405 30,864 Research and development 5,025 5,737 10,358 11,639 General and administrative 7,133 6,708 13,832 13,159 Total operating expenses 26,250 28,419 52,595 55,662 Loss from operations (1,414 ) (2,734 ) (3,714 ) (5,885 ) Other income (expense): Interest income (expense), net 211 106 394 231 Other income (expense), net 32 (1 ) 12 (20 ) Total other income (expense) 243 105 406 211 Loss before income taxes (1,171 ) (2,629 ) (3,308 ) (5,674 ) Income tax expense 167 135 359 247 Net loss $ (1,338 ) $ (2,764 ) $ (3,667 ) $ (5,921 ) Net loss per share: Basic and diluted $ (0.05 ) $ (0.10 ) $ (0.13 ) $ (0.22 ) Weighted average common shares outstanding: Basic and diluted 27,925,728 27,180,435 27,710,584 26,961,102 (1) Includes stock-based compensation as follows: Cost of revenue $ 191 $ 92 $ 576 $ 309 Sales and marketing 737 728 1,773 1,480 Research and development 512 355 1,242 1,004 General and administrative 1,361 1,141 2,608 2,256 $ 2,801 $ 2,316 $ 6,199 $ 5,049 (2) Includes depreciation and amortization as follows: Cost of revenue $ 978 $ 875 $ 1,901 $ 1,752 Sales and marketing 196 214 402 434 Research and development 93 90 183 188 General and administrative 329 300 656 585 $ 1,596 $ 1,479 $ 3,142 $ 2,959
ChannelAdvisor Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2019 2018 Cash flows from operating activities Net loss $ (3,667 ) $ (5,921 ) Adjustments to reconcile net loss to cash and cash equivalents provided by operating activities: Depreciation and amortization 3,142 2,959 Bad debt expense 434 532 Stock-based compensation expense 6,199 5,049 Deferred income taxes 352 190 Other items, net 192 (390 ) Changes in assets and liabilities: Accounts receivable 344 5,550 Prepaid expenses and other assets 1,609 4,373 Deferred contract costs (1,836 ) (3,586 ) Accounts payable and accrued expenses (1,157 ) (5,398 ) Deferred revenue (1,082 ) (2,326 ) Cash and cash equivalents provided by operating activities 4,530 1,032 Cash flows from investing activities Purchases of property and equipment (249 ) (656 ) Payment of internal-use software development costs (1,293 ) (290 ) Cash and cash equivalents used in investing activities (1,542 ) (946 ) Cash flows from financing activities Repayment of finance leases (1,902 ) (1,837 ) Proceeds from exercise of stock options 951 1,004 Payment of statutory tax withholding related to net-share settlement of restricted stock units (169 ) (1,569 ) Cash and cash equivalents used in financing activities (1,120 ) (2,402 ) Effect of currency exchange rate changes on cash and cash equivalents (28 ) (194 ) Net increase (decrease) in cash and cash equivalents 1,840 (2,510 ) Cash and cash equivalents, beginning of period 47,185 53,422 Cash and cash equivalents, end of period $ 49,025 $ 50,912
Reconciliation of GAAP Gross Profit and GAAP Gross Margin
to Non-GAAP Gross Profit and Non-GAAP Gross Margin
(unaudited; dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Revenue $ 31,932 $ 32,660 $ 63,506 $ 64,105 Gross profit (GAAP) $ 24,836 $ 25,685 $ 48,881 $ 49,777 Plus: Stock-based compensation expense included within cost of revenue 191 92 576 309 Gross profit (Non-GAAP) $ 25,027 $ 25,777 $ 49,457 $ 50,086 Gross margin (GAAP) 77.8 % 78.6 % 77.0 % 77.6 % Gross margin (Non-GAAP) 78.4 % 78.9 % 77.9 % 78.1 % Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses (unaudited; in thousands) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Operating expenses (GAAP) $ 26,250 $ 28,419 $ 52,595 $ 55,662 Less: Stock-based compensation expense included within operating expenses 2,610 2,224 5,623 4,740 Operating expenses (Non-GAAP) $ 23,640 $ 26,195 $ 46,972 $ 50,922 Reconciliation of GAAP Loss from Operations and GAAP Operating Margin
to Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin
(unaudited; dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Revenue $ 31,932 $ 32,660 $ 63,506 $ 64,105 Loss from operations (GAAP) $ (1,414 ) $ (2,734 ) $ (3,714 ) $ (5,885 ) Plus: Stock-based compensation expense 2,801 2,316 6,199 5,049 Income (loss) from operations (Non-GAAP) $ 1,387 $ (418 ) $ 2,485 $ (836 ) Operating margin (GAAP) (4.4 )% (8.4 )% (5.8 )% (9.2 )% Operating margin (Non-GAAP) 4.3 % (1.3 )% 3.9 % (1.3 )% Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Loss) (unaudited; in thousands) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Net loss (GAAP) $ (1,338 ) $ (2,764 ) $ (3,667 ) $ (5,921 ) Plus: Stock-based compensation expense 2,801 2,316 6,199 5,049 Net income (loss) (Non-GAAP) $ 1,463 $ (448 ) $ 2,532 $ (872 ) Reconciliation of GAAP Net Loss to Adjusted EBITDA (unaudited; in thousands) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Net loss (GAAP) $ (1,338 ) $ (2,764 ) $ (3,667 ) $ (5,921 ) Adjustments: Interest (income) expense, net (211 ) (106 ) (394 ) (231 ) Income tax expense 167 135 359 247 Depreciation and amortization expense 1,596 1,479 3,142 2,959 Total adjustments 1,552 1,508 3,107 2,975 EBITDA 214 (1,256 ) (560 ) (2,946 ) Stock-based compensation expense 2,801 2,316 6,199 5,049 Adjusted EBITDA $ 3,015 $ 1,060 $ 5,639 $ 2,103 Free Cash Flow Reconciliation (unaudited; in thousands) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Cash and cash equivalents provided by operating activities $ 3,110 $ (940 ) $ 4,530 $ 1,032 Less: Purchases of property and equipment (77 ) (318 ) (249 ) (656 ) Less: Payment of software development costs (782 ) (166 ) (1,293 ) (290 ) Free cash flow $ 2,251 $ (1,424 ) $ 2,988 $ 86 Adjusted EBITDA Guidance Reconciliation (unaudited; in millions) Third Quarter 2019 Full Year 2019 Low High Low High Net income (loss) (estimate) $ 0.1 $ 1.3 $ (0.4 ) $ 1.8 Adjustments (estimates): Interest (income) expense, net (0.1 ) (0.2 ) (0.6 ) (0.7 ) Income tax expense 0.2 0.1 0.7 0.6 Depreciation and amortization expense 1.6 1.5 6.1 6.0 Total adjustments 1.7 1.4 6.2 5.9 EBITDA 1.8 2.7 5.8 7.7 Stock-based compensation expense (estimate) 1.2 0.8 10.2 9.8 Severance and related costs (estimate) 1.0 1.0 1.0 1.0 Adjusted EBITDA guidance $ 4.0 $ 4.5 $ 17.0 $ 18.5