ChannelAdvisor Reports Record Fourth Quarter and Full Year 2018 Revenue; Fourth Quarter and Full Year 2018 Adjusted EBITDA Exceed Guidance

Financial Release

ChannelAdvisor Reports Record Fourth Quarter and Full Year 2018 Revenue; Fourth Quarter and Full Year 2018 Adjusted EBITDA Exceed Guidance

02/13/19
Achieves Milestone of Over $10 Billion in Annual GMV for 2018

RESEARCH TRIANGLE PARK, N.C., Feb. 13, 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 fourth quarter and full year ended December 31, 2018.

"We continued to advance the business in 2018, finishing the year with solid fourth quarter financial performance coming in above the mid-point of revenue guidance and significantly exceeding our Adjusted EBITDA expectations," said David Spitz, Chief Executive Officer of ChannelAdvisor. "We processed a record $10 billion in GMV in 2018, a special milestone for us, and grew our customer base quarter over quarter by a net 18 customers, the best quarterly sequential improvement in nearly two years. We also posted strong revenue growth and performance in our European and Australian regions, continued to see improvements in customer and revenue retention, and increased revenues from strategic partnerships. Going into 2019, we continue to focus on our strategic priorities of improving efficiency in our core business, winning more brands, and increasing our indirect sales contribution."

Fourth Quarter 2018 Financial Results

  • Revenue:  Total revenue was $34.8 million for the fourth quarter 2018, an increase of 2.0% from the year-ago period and the highest quarterly revenue in the history of the company. Fixed subscription fees were $25.7 million, or 73.8% of total revenue, an increase of 2.9% from the year-ago period. Variable subscription fees were $9.1 million, or 26.2% of total revenue, a decrease of 0.4% from the year-ago period.

  • Gross Profit:  GAAP gross profit was $27.2 million, representing a 78.2% gross margin for the fourth quarter 2018, compared with $27.2 million and 79.6%, respectively, for the year-ago period. Non-GAAP gross profit was $27.5 million, representing a 79.1% non-GAAP gross margin for the fourth quarter 2018, compared with $27.2 million and 79.9%, respectively, for the year-ago period.

  • Net Income (Loss):  GAAP net income was $0.6 million for the fourth quarter 2018, compared with a GAAP net loss of $(0.5) million for the year-ago period. GAAP diluted net income per share was $0.02 based on 28.7 million weighted average shares outstanding for the fourth quarter 2018, compared with a GAAP diluted net loss per share of $(0.02) and 26.6 million shares outstanding for the year-ago period. Non-GAAP net income was $3.8 million for the fourth quarter 2018, compared with $2.4 million for the year-ago period. Non-GAAP diluted net income per share was $0.13 based on 28.7 million weighted average shares outstanding, compared with $0.08 and 28.0 million shares outstanding, respectively, for the year-ago period. For a description of these and other non-GAAP measures included in this press release, including their potential limitations, see “Non-GAAP Financial Measures” below.

  • Adjusted EBITDA:  Adjusted EBITDA, a non-GAAP measure, was $5.4 million for the fourth quarter 2018, compared with $3.9 million for the year-ago period.

  • Cash:  Cash and cash equivalents totaled $47.2 million as of December 31, 2018, compared with $53.4 million as of December 31, 2017. Cash generated from operations was $1.2 million for the year ended December 31, 2018, compared with cash used in operations of $(3.0) million for the year-ago period.

Full Year 2018 Financial Results

  • Revenue:  Total revenue was $131.2 million for 2018, an increase of 7.1% from the prior year. Fixed subscription fees were $100.1 million, or 76.3% of total revenue, an increase of 7.0% from the prior year. Variable subscription fees were $31.1 million, or 23.7% of total revenue, an increase of 7.2% from the prior year.

  • Gross Profit:  GAAP gross profit was $101.7 million, representing a 77.5% gross margin for 2018, compared with $93.4 million and 76.3%, respectively, for the prior year. Non-GAAP gross profit was $102.6 million, representing a 78.2% non-GAAP gross margin for 2018, compared with $94.4 million and 77.0%, respectively, for the prior year.

  • Net Loss:  GAAP net loss was $(7.6) million for 2018, compared with $(16.6) million for the prior year. GAAP net loss per share was $(0.28) based on 27.1 million weighted average shares outstanding for 2018, compared with $(0.63) and 26.4 million shares outstanding, respectively, for the prior year. Non-GAAP net income was $3.6 million for 2018, compared with non-GAAP net loss of $(2.1) million for the prior year. Non-GAAP diluted net income per share was $0.13 based on 28.6 million weighted average shares outstanding, compared with a non-GAAP net loss per share of $(0.08) based on 26.4 million shares then outstanding for the prior year.

  • Adjusted EBITDA:  Adjusted EBITDA, a non-GAAP measure, was $9.8 million for 2018, compared with $4.6 million for the prior year.

Operating Highlights

  • Average Revenue per Customer (ARPC):  ARPC was $46,286 for 2018, an increase of 8.4% from the prior year.

  • Customer Count:  Total customer count was 2,833 at the end of 2018, compared with 2,815 as of September 30, 2018 and 2,840 customers at the end of 2017. In the fourth quarter 2018, ChannelAdvisor added notable new customers including Guess, FootJoy, and Avery Products and expanded its relationship with Whirlpool.

  • Gross Merchandise Value (GMV):  ChannelAdvisor's platform processed record annual GMV of over $10 billion in 2018, an increase of 12.4% from 2017.

  • Strategic Partnerships:  In 2018, ChannelAdvisor significantly expanded its reach and addressable market through new strategic partnerships, entering agreements to support 30 new marketplaces, expand its referral network to include five leading, global logistics providers across the globe, and embed ChannelAdvisor's capabilities in the platforms of two partners.

  • Platform Enhancements:  Continued progress on the development of a new user interface for ChannelAdvisor's core Marketplaces platform, which is expected to launch in April 2019, designed to substantially improve the ease of use and time to value for customers.

Financial Outlook

Based on information available as of today, ChannelAdvisor is issuing guidance for its first quarter and full year 2019:

(in millions, except percentages) Q1 2019   Full Year 2019
Revenue $31.5 - $32.0   $136.0 - $139.0
  Y/Y Growth 0% - 2%   4% - 6%
Adjusted EBITDA $0.6 - $1.0   $13.0 - $15.0
  As a Percentage of Revenue (at the midpoints) 3%   10%
Stock-based Compensation Expense $3.0 - $3.4   $11.5 - $12.5
Weighted Average Shares Outstanding 27.5   28.0

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 Fourth Quarter and Full Year 2018 Financial Results Conference Call
  When: Wednesday, February 13, 2019
  Time: 8:00 a.m. ET
  Live Call: (855) 638-4821, Passcode 6448476, Toll free
    (704) 288-0612, Passcode 6448476, 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.

Refer to the "Supplemental Financial Information" presentation available at http://ir.channeladvisor.com for supplemental operating metrics and financials.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: non-GAAP net income (loss) and adjusted EBITDA. Non-GAAP net income (loss) excludes non-cash stock-based compensation expense, non-recurring severance and related costs due to our reorganization of our China operations in 2018, and a one-time charge for voluntary disclosure agreements ("VDAs") related to sales taxes in 2017. Adjusted EBITDA excludes each of these items, as well as depreciation, amortization, income tax expense, and net interest 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.

Refer to the "Supplemental Financial Information" presentation available at http://ir.channeladvisor.com for GAAP to non-GAAP reconciliation schedules for the presented periods.

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 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 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, 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:
Tamara Gibbs
ChannelAdvisor Corporation
tamara.gibbs@channeladvisor.com
919-249-9798


ChannelAdvisor Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)

  December 31,
  2018   2017
Assets (unaudited)    
Current assets:      
Cash and cash equivalents $ 47,185     $ 53,422  
Accounts receivable, net of allowance of $652 and $609 as of December 31, 2018 and
2017, respectively
23,436     27,452  
Prepaid expenses and other current assets 9,248     16,462  
     Total current assets 79,869     97,336  
Property and equipment, net 12,007     10,877  
Goodwill 23,486     23,486  
Intangible assets, net 1,894     2,503  
Deferred contract costs, net of current portion 11,336      
Long-term deferred tax assets, net 4,162     5,550  
Other assets 1,515     759  
Total assets $ 134,269     $ 140,511  
Liabilities and stockholders' equity      
Current liabilities:      
Accounts payable $ 1,598     $ 7,243  
Accrued expenses 9,358     12,611  
Deferred revenue 24,205     27,143  
Other current liabilities 3,569     4,477  
     Total current liabilities 38,730     51,474  
Long-term capital leases, net of current portion 1,404     641  
Lease incentive obligation 2,154     3,328  
Other long-term liabilities 2,343     3,157  
Total liabilities 44,631     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 December 31, 2018 and 2017, respectively
     
Common stock, $0.001 par value, 100,000,000 shares authorized, 27,347,115 and
26,601,626 shares issued and outstanding as of December 31, 2018 and 2017,
respectively
27     27  
Additional paid-in capital 271,550     262,805  
Accumulated other comprehensive loss (1,707 )   (789 )
Accumulated deficit (180,232 )   (180,132 )
     Total stockholders' equity 89,638     81,911  
Total liabilities and stockholders' equity $ 134,269     $ 140,511  


ChannelAdvisor Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)

  Three Months Ended December 31,   Year Ended December 31,
2018   2017   2018   2017
  (unaudited)   (unaudited)   (unaudited)    
Revenue $ 34,789     $ 34,105     $ 131,218     $ 122,535  
Cost of revenue (1) (2) 7,567     6,953     29,501     29,102  
Gross profit 27,222     27,152     101,717     93,433  
Operating expenses (1) (2):              
Sales and marketing 14,295     15,350     60,080     60,343  
Research and development 5,370     5,990     22,359     21,868  
General and administrative 6,937     6,248     26,784     27,800  
     Total operating expenses 26,602     27,588     109,223     110,011  
Income (loss) from operations 620     (436 )   (7,506 )   (16,578 )
Other income (expense):              
Interest income (expense), net 159     73     510     222  
Other income (expense), net 7     (23 )   9     83  
     Total other income (expense) 166     50     519     305  
Income (loss) before income taxes 786     (386 )   (6,987 )   (16,273 )
Income tax expense 179     75     614     284  
Net income (loss) $ 607     $ (461 )   $ (7,601 )   $ (16,557 )
Net income (loss) per share:              
Basic $ 0.02     $ (0.02 )   $ (0.28 )   $ (0.63 )
Diluted $ 0.02     $ (0.02 )   $ (0.28 )   $ (0.63 )
Weighted average common shares outstanding:              
Basic 27,330,983     26,583,657     27,138,274     26,366,748  
Diluted 28,731,489     26,583,657     27,138,274     26,366,748  
               
(1) Includes stock-based compensation as follows:              
Cost of revenue $ 304     $ 87     $ 911     $ 951  
Sales and marketing 661     978     3,144     3,827  
Research and development 567     601     2,152     2,260  
General and administrative 1,043     1,149     4,391     4,909  
  $ 2,575     $ 2,815     $ 10,598     $ 11,947  
               
(2) Includes depreciation and amortization as follows:              
Cost of revenue $ 939     $ 920     $ 3,610     $ 4,019  
Sales and marketing 226     227     884     998  
Research and development 91     100     371     424  
General and administrative 329     290     1,229     1,137  
  $ 1,585     $ 1,537     $ 6,094     $ 6,578  


ChannelAdvisor Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)

  Year Ended December 31,
  2018   2017
  (unaudited)    
Cash flows from operating activities      
Net loss $ (7,601 )   $ (16,557 )
Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in)
operating activities:
     
Depreciation and amortization 6,094     6,578  
Bad debt expense 991     727  
Non-cash stock-based compensation expense 10,598     11,947  
Deferred income taxes 493     130  
Other items, net (851 )   (869 )
Changes in assets and liabilities, net of effects from acquisition:      
     Accounts receivable 2,634     (8,261 )
     Prepaid expenses and other assets 10,303     (5,514 )
     Deferred contract costs (6,730 )    
     Accounts payable and accrued expenses (10,936 )   5,242  
     Deferred revenue (3,765 )   3,581  
Net cash and cash equivalents provided by (used in) operating activities 1,230     (2,996 )
       
Cash flows from investing activities      
Purchases of property and equipment (2,045 )   (2,790 )
Payment of software development costs (894 )   (293 )
Acquisition, net of cash acquired     (2,177 )
Net cash and cash equivalents used in investing activities (2,939 )   (5,260 )
       
Cash flows from financing activities      
Repayment of capital leases (2,241 )   (2,840 )
Proceeds from exercise of stock options 1,106     1,428  
Payment of statutory tax withholding related to net-share settlement of restricted stock units (2,959 )   (2,727 )
Net cash and cash equivalents used in financing activities (4,094 )   (4,139 )
       
Effect of currency exchange rate changes on cash and cash equivalents (434 )   397  
Net decrease in cash and cash equivalents (6,237 )   (11,998 )
       
Cash and cash equivalents, beginning of year 53,422     65,420  
Cash and cash equivalents, end of year $ 47,185     $ 53,422  


Reconciliation of GAAP Gross Profit and GAAP Gross Margin
to Non-GAAP Gross Profit and Non-GAAP Gross Margin
(unaudited; in thousands)
  Three Months Ended December 31,   Year Ended December 31,
  2018   2017   2018   2017
Revenue $ 34,789     $ 34,105     $ 131,218     $ 122,535  
               
Gross profit (GAAP) $ 27,222     $ 27,152     $ 101,717     $ 93,433  
Plus: Stock-based compensation expense 304     87     911     951  
Gross profit (Non-GAAP) $ 27,526     $ 27,239     $ 102,628     $ 94,384  
Gross margin (GAAP) 78.2 %   79.6 %   77.5 %   76.3 %
Gross margin (Non-GAAP) 79.1 %   79.9 %   78.2 %   77.0 %


Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses
(unaudited; in thousands)
  Three Months Ended December 31,   Year Ended December 31,
  2018   2017   2018   2017
Operating expenses (GAAP) $ 26,602     $ 27,588     $ 109,223     $ 110,011  
Less: Stock-based compensation expense 2,271     2,728     9,687     10,996  
Less: Non-recurring severance and related costs 587         587      
Less: One-time charge for VDAs related to sales taxes             2,539  
Operating expenses (Non-GAAP) $ 23,744     $ 24,860     $ 98,949     $ 96,476  


Reconciliation of GAAP Income (Loss) from Operations and GAAP Operating Margin  to Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin
(unaudited; in thousands)
  Three Months Ended December 31,   Year Ended December 31,
  2018   2017   2018   2017
Revenue $ 34,789     $ 34,105     $ 131,218     $ 122,535  
               
Income (loss) from operations (GAAP) $ 620     $ (436 )   $ (7,506 )   $ (16,578 )
Plus: Stock-based compensation expense 2,575     2,815     10,598     11,947  
Plus: Non-recurring severance and related costs 587         587      
Plus: One-time charge for VDAs related to sales taxes             2,539  
Income (loss) from operations (Non-GAAP) $ 3,782     $ 2,379     $ 3,679     $ (2,092 )
Operating margin (GAAP) 1.8 %   (1.3 )%   (5.7 )%   (13.5 )%
Operating margin (Non-GAAP) 10.9 %   7.0 %   2.8 %   (1.7 )%


Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(unaudited; in thousands)
  Three Months Ended December 31,   Year Ended December 31,
  2018   2017   2018   2017
Net income (loss) (GAAP) $ 607     $ (461 )   $ (7,601 )   $ (16,557 )
Plus: Stock-based compensation expense 2,575     2,815     10,598     11,947  
Plus: Non-recurring severance and related costs 587         587      
Plus: One-time charge for VDAs related to sales taxes             2,539  
Net income (loss) (Non-GAAP) $ 3,769     $ 2,354     $ 3,584     $ (2,071 )


Reconciliation of Net Income (Loss) to Adjusted EBITDA
(unaudited; in thousands)
  Three Months Ended December 31,   Year Ended December 31,
  2018   2017   2018   2017
Net income (loss) $ 607     $ (461 )   $ (7,601 )   $ (16,557 )
Adjustments:              
Interest (income) expense, net (159 )   (73 )   (510 )   (222 )
Income tax expense 179     75     614     284  
Depreciation and amortization expense 1,585     1,537     6,094     6,578  
Total adjustments 1,605     1,539     6,198     6,640  
EBITDA 2,212     1,078     (1,403 )   (9,917 )
Stock-based compensation expense 2,575     2,815     10,598     11,947  
Non-recurring severance and related costs 587         587      
One-time charge for VDAs related to sales taxes             2,539  
Adjusted EBITDA $ 5,374     $ 3,893     $ 9,782     $ 4,569  


Free Cash Flow Reconciliation
(unaudited; in thousands)
  Year Ended December 31,
  2018   2017
Cash provided by (used in) operating activities $ 1,230     $ (2,996 )
Less: Purchases of property and equipment (2,045 )   (2,790 )
Free cash flow $ (815 )   $ (5,786 )


Adjusted EBITDA Guidance Reconciliation
(unaudited; in millions)
  First Quarter 2019   Full Year 2019
  Low   High   Low   High
Net loss (estimate) $ (4.5 )   $ (3.4 )   $ (6.0 )   $ (2.5 )
Adjustments (estimates):              
Interest (income) expense, net (0.1 )   (0.2 )   (0.6 )   (0.8 )
Income tax expense 0.2     0.1     0.8     0.7  
Depreciation and amortization expense 1.6     1.5     6.3     6.1  
Total adjustments 1.7     1.4     6.5     6.0  
EBITDA (2.8 )   (2.0 )   0.5     3.5  
Stock-based compensation expense (estimate) 3.4     3.0     12.5     11.5  
Adjusted EBITDA guidance $ 0.6     $ 1.0     $ 13.0     $ 15.0  

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Source: ChannelAdvisor Corporation

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