ChannelAdvisor Announces Second Quarter 2018 Financial Results

Financial Release

ChannelAdvisor Announces Second Quarter 2018 Financial Results

08/09/18

Revenue of $32.7 million increases 9 percent year-over-year and exceeds guidance

GAAP net loss of $(2.8) million

Adjusted EBITDA of $1.1 million exceeds guidance

RESEARCH TRIANGLE PARK, N.C., Aug. 09, 2018 (GLOBE NEWSWIRE) -- ChannelAdvisor Corporation (NYSE: ECOM), a leading provider of cloud-based e-commerce solutions that enable retailers and brands to increase global sales, today announced its financial results for the quarter ended June 30, 2018.

"We were pleased with our results in the second quarter. We enjoyed continued momentum from expanding strategic partnerships, and improved efficiency allowed us to deliver margin improvement faster than anticipated. Continued strength in GMV makes us optimistic about our outlook for the remainder of the year," said David Spitz, CEO of ChannelAdvisor.

Second Quarter 2018 Financial Results

  • Total revenue was $32.7 million for the second quarter of 2018, an increase of 9 percent compared with total revenue of $30.0 million for the second quarter of 2017.
  • GAAP net loss was $(2.8) million for the second quarter of 2018 compared with GAAP net loss of $(4.0) million for the second quarter of 2017. GAAP net loss per share was $(0.10) for the second quarter of 2018, based on 27.2 million weighted average shares outstanding, compared with GAAP net loss per share of $(0.15) for the year-ago period, based on 26.4 million weighted average shares then outstanding.
  • Non-GAAP net loss, which excludes non-cash stock-based compensation, was $(0.4) million for the second quarter of 2018 compared with a non-GAAP net loss of $(0.6) million for the second quarter of 2017.
  • Adjusted EBITDA, a non-GAAP measure, was $1.1 million for both the second quarters of 2018 and 2017. Adjusted EBITDA for both the second quarters of 2018 and 2017 excludes depreciation, amortization, income tax expense, interest income (expense) and stock-based compensation expense.
  • Cash and cash equivalents as of June 30, 2018 totaled $50.9 million, compared with $53.4 million as of December 31, 2017.

Recent Business Highlights

  • Average revenue per customer, calculated on a trailing twelve-month basis, increased 10 percent to $45,029 for the twelve months ended June 30, 2018, compared with $41,029 for the twelve months ended June 30, 2017. Total customer count was 2,829 at the end of the second quarter of 2018, compared with 2,906 customers at the end of the second quarter of 2017.
  • Fixed subscription fees were 76 percent of total revenue and variable subscription fees were 24 percent of total revenue for the second quarter of 2018. This compares to 75 percent and 25 percent, respectively, for the second quarter of 2017.
  • Added new customers during the second quarter of 2018, including Keurig, Lenovo and Mondelez International and significantly expanded relationship with Xerox.
  • In August, ChannelAdvisor announced an expanded strategic alliance with Google to support its new program, Shopping Actions. With the addition of Shopping Actions support to ChannelAdvisor’s suite of Google retail solutions, brands and retailers can now leverage the ChannelAdvisor platform to list, manage, promote and sell their products across Google’s surfaces.

Financial Outlook

Based on information available as of today, ChannelAdvisor is issuing the following guidance for the third quarter and full year 2018:

Third Quarter 2018

  • Total revenue between $31.4 million and $31.8 million.
  • Adjusted EBITDA between $0.5 million and $0.9 million.
  • Stock-based compensation expense between $3.0 million and $3.4 million.
  • Weighted average shares outstanding of 27.3 million.

Full Year 2018

  • Total revenue between $130.5 million and $131.5 million.
  • Adjusted EBITDA between $7.8 million and $8.8 million.
  • Stock-based compensation expense between $11.1 million and $11.6 million.
  • Weighted average shares outstanding of 27.2 million.

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 2018 Financial Results Conference Call
When: Thursday, August 9, 2018
Time: 4:30 p.m. ET
Live Call: (855) 638-4821, Passcode 3092579, Domestic
  (704) 288-0612, Passcode 3092579, International
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 the company's solutions.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: non-GAAP net loss and adjusted EBITDA.

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.

About ChannelAdvisor

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 retailers and brands 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 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 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, 2017 and its Quarterly Report on Form 10-Q that will be filed for the quarter ended June 30, 2018, 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; and 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.

Investor Contact:
Traci Mangini
ChannelAdvisor Corporation
traci.mangini@channeladvisor.com
919-228-4886

Media Contact:
Ashley Yakopec
ChannelAdvisor Corporation
ashley.yakopec@channeladvisor.com
919-249-9848

 
ChannelAdvisor Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
 
  June 30, 2018   December 31, 2017
  (unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 50,912     $ 53,422  
Accounts receivable, net of allowance of $607 and $609 as of June 30, 2018
and December 31, 2017, respectively
21,210     27,452  
Prepaid expenses and other current assets 14,384     16,462  
Total current assets 86,506     97,336  
Property and equipment, net 12,871     10,877  
Goodwill 23,486     23,486  
Intangible assets, net 2,198     2,503  
Deferred contract costs, net of current portion  9,235      
Long-term deferred tax assets, net 4,792     5,550  
Other assets 1,342     759  
Total assets $  140,430     $ 140,511  
Liabilities and stockholders' equity      
Current liabilities:      
Accounts payable $ 4,892     $ 7,243  
Accrued expenses 12,022     12,611  
Deferred revenue 26,023     27,143  
Other current liabilities 4,410     4,477  
Total current liabilities 47,347     51,474  
Long-term capital leases, net of current portion 1,555     641  
Lease incentive obligation 2,541     3,328  
Other long-term liabilities 2,561     3,157  
Total liabilities 54,004     58,600  
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, 2018 and December 31, 2017
     
Common stock, $0.001 par value, 100,000,000 shares authorized, 27,278,649
and 26,601,626 shares issued and outstanding as of June 30, 2018 and
December 31, 2017, respectively
27     27  
Additional paid-in capital 266,222     262,805  
Accumulated other comprehensive loss (1,271 )   (789 )
Accumulated deficit (178,552 )   (180,132 )
Total stockholders' equity 86,426     81,911  
Total liabilities and stockholders' equity $ 140,430     $ 140,511  
               

 

 
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,
  2018   2017   2018   2017
Revenue $ 32,660     $ 30,004     $ 64,105     $ 58,333  
Cost of revenue (1) (2) (3) 6,975     7,144     14,328     14,840  
Gross profit 25,685     22,860     49,777     43,493  
Operating expenses (1) (2):              
Sales and marketing (3) 15,974     15,003     30,864     30,188  
Research and development 5,737     5,147     11,639     10,118  
General and administrative 6,708     6,678     13,159     15,208  
Total operating expenses 28,419     26,828     55,662     55,514  
Loss from operations (2,734 )   (3,968 )   (5,885 )   (12,021 )
Other income (expense):              
Interest income (expense), net 106     54     231     82  
Other income (expense), net (1 )   13     (20 )   70  
Total other income (expense) 105     67     211     152  
Loss before income taxes (2,629 )   (3,901 )   (5,674 )   (11,869 )
Income tax expense 135     84     247     172  
Net loss $ (2,764 )   $ (3,985 )   $ (5,921 )   $ (12,041 )
Net loss per share:              
Basic and diluted $ (0.10 )   $ (0.15 )   $ (0.22 )   $ (0.46 )
Weighted average common shares outstanding:              
Basic and diluted 27,180,435     26,380,031     26,961,102     26,219,348  
               
               
(1) Includes stock-based compensation as follows:              
Cost of revenue (3) $ 92     $ 239     $ 309     $ 566  
Sales and marketing (3) 728     1,172     1,480     1,918  
Research and development 355     503     1,004     1,071  
General and administrative 1,141     1,454     2,256     2,737  
  $ 2,316     $ 3,368     $ 5,049     $ 6,292  
               
(2) Includes depreciation and amortization as follows:              
Cost of revenue (3) $ 875     $ 1,066     $ 1,752     $ 2,150  
Sales and marketing (3) 214     256     434     504  
Research and development 90     111     188     222  
General and administrative 300     270     585     560  
  $ 1,479     $ 1,703     $ 2,959     $ 3,436  
                               
(3) Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no impact on our reported operating loss or net loss for the period.
 



 
ChannelAdvisor Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
  Six Months Ended June 30,
  2018   2017
Cash flows from operating activities      
Net loss $ (5,921 )   $ (12,041 )
Adjustments to reconcile net loss to cash and cash equivalents
provided by (used in) operating activities:
     
Depreciation and amortization 2,959     3,436  
Bad debt expense 532     113  
Stock-based compensation expense 5,049     6,292  
Deferred income taxes 190     155  
Other items, net (390 )   (434 )
Changes in assets and liabilities, net of effects from acquisition:      
Accounts receivable 5,550     (2,157 )
Prepaid expenses and other assets 4,373     1,193  
Deferred contract costs (3,586 )    
Accounts payable and accrued expenses (5,398 )   276  
Deferred revenue (2,326 )   3,070  
Cash and cash equivalents provided by (used in) operating activities 1,032     (97 )
Cash flows from investing activities      
Purchases of property and equipment (656 )   (543 )
Payment of internal-use software development costs (290 )   (159 )
Acquisition, net of cash acquired     (2,177 )
Cash and cash equivalents used in investing activities (946 )   (2,879 )
Cash flows from financing activities      
Repayment of capital leases (1,837 )   (2,439 )
Proceeds from exercise of stock options 1,004     339  
Payment of statutory tax withholding related to net-share settlement of
restricted stock units
(1,569 )   (2,494 )
Cash and cash equivalents used in financing activities (2,402 )   (4,594 )
       
Effect of currency exchange rate changes on cash and cash equivalents (194 )   29  
Net decrease in cash and cash equivalents (2,510 )   (7,541 )
Cash and cash equivalents, beginning of period 53,422     65,420  
Cash and cash equivalents, end of period $ 50,912     $ 57,879  
               


 
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,
  2018   2017   2018   2017
Revenue $ 32,660     $ 30,004     $ 64,105     $ 58,333  
               
Gross profit (GAAP) $ 25,685     $ 22,860     $ 49,777     $ 43,493  
Plus: Stock-based compensation expense included within cost of revenue 92     239     309     566  
Gross profit (Non-GAAP) $ 25,777     $ 23,099     $ 50,086     $ 44,059  
Gross margin (GAAP) 78.6 %   76.2 %   77.6 %   74.6 %
Gross margin (Non-GAAP) 78.9 %   77.0 %   78.1 %   75.5 %
                       


 
Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses
(unaudited; in thousands)
       
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
Operating expenses (GAAP) $ 28,419     $ 26,828     $ 55,662     $ 55,514  
Less: Stock-based compensation expense included within operating expenses 2,224     3,129     4,740     5,726  
Less: One-time charge for VDAs related to sales taxes             2,539  
Operating expenses (Non-GAAP) $ 26,195     $ 23,699     $ 50,922     $ 47,249  
                               


 
Reconciliation of GAAP Loss from Operations and GAAP Operating Margin
to Non-GAAP Loss from Operations and Non-GAAP Operating Margin
(unaudited; dollars in thousands)
       
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
Revenue $ 32,660     $ 30,004     $ 64,105     $ 58,333  
               
Loss from operations (GAAP) $ (2,734 )   $ (3,968 )   $ (5,885 )   $ (12,021 )
Plus: Stock-based compensation expense 2,316     3,368     5,049     6,292  
Plus: One-time charge for VDAs related to sales taxes             2,539  
Loss from operations (Non-GAAP) $ (418 )   $ (600 )   $ (836 )   $ (3,190 )
Operating margin (GAAP) (8.4 )%   (13.2 )%   (9.2 )%   (20.6 )%
Operating margin (Non-GAAP) (1.3 )%   (2.0 )%   (1.3 )%   (5.5 )%
                       


 
Reconciliation of GAAP Net Loss to Non-GAAP Net Loss
(unaudited; in thousands)
       
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
Net loss (GAAP) $ (2,764 )   $ (3,985 )   $ (5,921 )   $ (12,041 )
Plus: Stock-based compensation expense 2,316     3,368     5,049     6,292  
Plus: One-time charge for VDAs related to sales taxes             2,539  
Net loss (Non-GAAP) $ (448 )   $ (617 )   $ (872 )   $ (3,210 )
                               


 
Reconciliation of Net Loss to Adjusted EBITDA
(unaudited; in thousands)
       
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
Net loss $ (2,764 )   $ (3,985 )   $ (5,921 )   $ (12,041 )
  Adjustments:              
Interest (income) expense, net (106 )   (54 )   (231 )   (82 )
Income tax expense 135     84     247     172  
Depreciation and amortization expense 1,479     1,703     2,959     3,436  
Total adjustments 1,508     1,733     2,975     3,526  
EBITDA (1,256 )   (2,252 )   (2,946 )   (8,515 )
Stock-based compensation expense 2,316     3,368     5,049     6,292  
One-time charge for VDAs related to sales taxes             2,539  
Adjusted EBITDA $ 1,060     $ 1,116     $ 2,103     $ 316  
                               


 
Free Cash Flow Reconciliation
(unaudited; in thousands)
   
  Six Months Ended June 30,
  2018   2017
Cash provided by operating activities $ 1,032     $ (97 )
Less: Purchases of property and equipment (656 )   (543 )
Free cash flow $ 376     $ (640 )
               


 
Adjusted EBITDA Guidance Reconciliation
(unaudited; in millions)
       
  Third Quarter 2018   Full Year 2018
  Low   High   Low   High
Net loss (estimate) $ (4.7 )   $ (3.6 )   $ (10.2 )   $ (8.4 )
  Adjustments (estimates):              
Interest (income) expense, net 0.0     (0.1 )   (0.3 )   (0.4 )
Income tax (benefit) expense 0.2     0.1     0.6     0.5  
Depreciation and amortization expense 1.6     1.5     6.1     6.0  
Total adjustments 1.8     1.5     6.4     6.1  
EBITDA (2.9 )   (2.1 )   (3.8 )   (2.3 )
Stock-based compensation expense (estimate) 3.4     3.0     11.6     11.1  
Adjusted EBITDA guidance $ 0.5     $ 0.9     $ 7.8     $ 8.8  

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Source: ChannelAdvisor Corporation

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