Adjusted EBITDA Margin More than Doubles on a Y/Y Basis
Y/Y Variable Revenue Growth; First Time Since Third Quarter 2018
April GMV Sets Record, Topping $1 Billion and Exceeding December 2019
Company Withdraws 2020 Full Year Financial Outlook Due to COVID-19 Related Uncertainty
RESEARCH TRIANGLE PARK, N.C., May 07, 2020 (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 March 31, 2020.
"During this unprecedented pandemic, we moved quickly to a virtual model to protect the safety of our employees and communities. Despite the disruption, our team kept its focus on our customers and we delivered strong financial results for the quarter," said David Spitz, ChannelAdvisor’s chief executive officer. "An unexpected surge to holiday-level GMV (gross merchandise value) levels processed on our platform continued into April, highlighting the critical role we have played in helping our customers adapt seamlessly to a rapidly-changing situation. Further, our strong liquidity and cash flow have allowed us to continue to think and invest for the long term as we consider ways to help our customers accelerate their digital transformation. While our first quarter 2020 financial results exceeded prior guidance, we have decided to withdraw our previously announced guidance for the full year 2020 due to uncertainty stemming from the novel coronavirus, or COVID-19, pandemic."
First Quarter 2020 Financial Results
- Revenue: Total revenue was $32.0 million for the first quarter 2020, an increase of 1.5% from the year-ago period. On a trailing twelve month basis, brands revenue continued to expand for the first quarter 2020 to a new high of 30.6% of total revenue. Fixed subscription fees were $25.8 million, or 80.6% of total revenue, an increase of 1.4% from the year-ago period. Variable revenues were $6.2 million, or 19.4% of total revenue, an increase of 1.5% from the year-ago period.
- Gross Profit: GAAP gross profit was $25.0 million, representing a 78.0% gross margin for the first quarter 2020, compared with $24.0 million and 76.2%, respectively, for the year-ago period. Non-GAAP gross profit was $25.3 million, representing a 78.9% non-GAAP gross margin for the first quarter 2020, compared with $24.4 million and 77.4%, respectively, for the year-ago period. For a description of non-GAAP gross profit, non-GAAP gross margin and other non-GAAP measures included in this press release, including their potential limitations, see “Non-GAAP Financial Measures” below.
- Net Income (Loss): GAAP net income was $2.0 million for the first quarter 2020, compared with GAAP net loss of $(2.3) million for the year-ago period. Basic and diluted GAAP net income per share was $0.07 based on 28.2 million and 29.0 million basic and diluted weighted average shares outstanding, respectively, for the first quarter 2020, compared with GAAP net loss of $(0.08) per share based on 27.5 million basic and diluted weighted average shares outstanding for the year-ago period.
- Adjusted EBITDA: Adjusted EBITDA, a non-GAAP measure, was $6.5 million for the first quarter 2020, compared with $2.6 million for the year-ago period. Adjusted EBITDA margin for the first quarter 2020 was 20.3%, compared with 8.3% for the year-ago period.
- Cash: Cash and cash equivalents totaled $56.3 million as of March 31, 2020, compared with $51.8 million as of December 31, 2019. Cash generated from operations was $5.7 million for the three months ended March 31, 2020, compared with $1.4 million for the year-ago period. Free cash flow, a non-GAAP measure, was $4.7 million for the three months ended March 31, 2020, compared with $0.7 million for the three months ended March 31, 2019.
COVID-19
In response to the COVID-19 pandemic, we activated our business continuity program in late February. In order to ensure employee safety we implemented a temporary, global work-from-home policy in early March and halted all business travel, a transition that went smoothly and did not disrupt our operations. We continue to prioritize employee safety and anticipate continuing our work-from-home policy until it is safe to return to our offices, at which point we anticipate a phased approach to doing so. We also initiated a program to assist customers experiencing demonstrated hardship and, to date, have applied approximately $1 million in relief in the form of deferred payment plans or reduced contractual tiers, in an effort to support them during this challenging period. Lastly, we are proud that our employees continue to give back to the community in various ways, including individually donating over $18,000 to the North Carolina Hospital Association’s Feed the Soul campaign in support of North Carolina based restaurants and healthcare workers.
Recent Operating Highlights
- ChannelAdvisor Starter Edition Beta Launch: Entered a beta launch with a strategic partner, ShipStation, for ChannelAdvisor Starter Edition, a solution designed to help small-to-medium-sized merchants streamline their marketplace operations and expand to new channels.
- Support for New Selling Channels: Launched support for more than a dozen new marketplaces, including Amazon in the Netherlands and Singapore, as well as drop-ship integrations with Office Depot and Lowe's.
- Enhanced Advertising Support: Enhanced support for Amazon Advertising with flexible campaign scheduling or “dayparting” capabilities to help merchants maximize advertising spend by adjusting bid amounts to coincide with days and times during which conversions are highest and extended the Dynamic Shopping Links solution, enabling brands to make advertising campaigns shoppable.
- Customer Details: In the first quarter 2020, ChannelAdvisor added notable new customers including VENUS Fashion & Swim and expanded relationships with Bronson Nutritionals, Burton Snowboards, Horizon Hobby, and Spoonflower.
Financial Outlook
Based on the information available as of today, ChannelAdvisor is issuing guidance for its second quarter 2020 but is no longer issuing guidance for the full year 2020.
| (in millions) | Q2 2020 |
| Revenue | $32.5 (floor) |
| Adjusted EBITDA | $6.0 (floor) |
| Stock-based Compensation Expense | $2.8 |
| Weighted Average Shares Outstanding | 28.4 |
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 First Quarter 2020 Financial Results Conference Call |
| When: | Thursday, May 7, 2020 |
| Time: | 8:00 a.m. ET |
| Live Call: | (855) 638-4821, Passcode 6357477, Toll free |
| (704) 288-0612, Passcode 6357477, Toll | |
| Webcast: | http://ir.channeladvisor.com (live and replay) |
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.
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 for the second quarter 2020 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, 2019 and its Quarterly Report on Form 10-Q that will be filed for the quarter ended March 31, 2020, 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: the impact of the COVID-19 pandemic on global economic conditions and on our revenues and financial performance; 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 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)
| March 31, 2020 | December 31, 2019 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 56,349 | $ | 51,785 | ||||
| Accounts receivable, net of allowance of $465 and $733 as of March 31, 2020 and December 31, 2019, respectively | 21,300 | 22,126 | ||||||
| Prepaid expenses and other current assets | 9,518 | 10,452 | ||||||
| Total current assets | 87,167 | 84,363 | ||||||
| Operating lease right of use assets | 10,202 | 11,128 | ||||||
| Property and equipment, net | 9,322 | 9,597 | ||||||
| Goodwill | 23,486 | 23,486 | ||||||
| Intangible assets, net | 1,133 | 1,285 | ||||||
| Deferred contract costs, net of current portion | 12,347 | 12,810 | ||||||
| Long-term deferred tax assets, net | 3,113 | 3,584 | ||||||
| Other assets | 674 | 614 | ||||||
| Total assets | $ | 147,444 | $ | 146,867 | ||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,272 | $ | 409 | ||||
| Accrued expenses | 7,445 | 8,577 | ||||||
| Deferred revenue | 19,335 | 21,000 | ||||||
| Other current liabilities | 6,600 | 6,431 | ||||||
| Total current liabilities | 34,652 | 36,417 | ||||||
| Long-term operating leases, net of current portion | 8,526 | 9,767 | ||||||
| Long-term finance leases, net of current portion | 19 | 27 | ||||||
| Other long-term liabilities | 1,130 | 1,007 | ||||||
| Total liabilities | 44,327 | 47,218 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding as of March 31, 2020 and December 31, 2019 | — | — | ||||||
| Common stock, $0.001 par value, 100,000,000 shares authorized, 28,365,069 and 28,077,469 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 28 | 28 | ||||||
| Additional paid-in capital | 280,132 | 278,111 | ||||||
| Accumulated other comprehensive loss | (2,540 | ) | (1,740 | ) | ||||
| Accumulated deficit | (174,503 | ) | (176,750 | ) | ||||
| Total stockholders' equity | 103,117 | 99,649 | ||||||
| Total liabilities and stockholders' equity | $ | 147,444 | $ | 146,867 | ||||
ChannelAdvisor Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 32,032 | $ | 31,574 | ||||
| Cost of revenue (1) (2) | 7,063 | 7,529 | ||||||
| Gross profit | 24,969 | 24,045 | ||||||
| Operating expenses (1) (2): | ||||||||
| Sales and marketing | 12,340 | 14,313 | ||||||
| Research and development | 4,801 | 5,333 | ||||||
| General and administrative | 5,735 | 6,699 | ||||||
| Total operating expenses | 22,876 | 26,345 | ||||||
| Income (loss) from operations | 2,093 | (2,300 | ) | |||||
| Other income (expense): | ||||||||
| Interest income, net | 126 | 183 | ||||||
| Other income (expense), net | 8 | (20 | ) | |||||
| Total other income | 134 | 163 | ||||||
| Income (loss) before income taxes | 2,227 | (2,137 | ) | |||||
| Income tax expense | 220 | 192 | ||||||
| Net income (loss) | $ | 2,007 | $ | (2,329 | ) | |||
| Net income (loss) per share: | ||||||||
| Basic | $ | 0.07 | $ | (0.08 | ) | |||
| Diluted | $ | 0.07 | $ | (0.08 | ) | |||
| Weighted average common shares outstanding: | ||||||||
| Basic | 28,161,765 | 27,493,049 | ||||||
| Diluted | 29,047,028 | 27,493,049 | ||||||
| (1) Includes stock-based compensation as follows: | ||||||||
| Cost of revenue | $ | 319 | $ | 385 | ||||
| Sales and marketing | 740 | 1,036 | ||||||
| Research and development | 680 | 730 | ||||||
| General and administrative | 1,175 | 1,247 | ||||||
| $ | 2,914 | $ | 3,398 | |||||
| (2) Includes depreciation and amortization as follows: | ||||||||
| Cost of revenue | $ | 976 | $ | 923 | ||||
| Sales and marketing | 155 | 206 | ||||||
| Research and development | 70 | 90 | ||||||
| General and administrative | 277 | 327 | ||||||
| $ | 1,478 | $ | 1,546 | |||||
ChannelAdvisor Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 2,007 | $ | (2,329 | ) | |||
| Adjustments to reconcile net income (loss) to cash and cash equivalents provided by operating activities: | ||||||||
| Depreciation and amortization | 1,478 | 1,546 | ||||||
| Bad debt expense | 297 | 242 | ||||||
| Stock-based compensation expense | 2,914 | 3,398 | ||||||
| Deferred income taxes | 220 | 189 | ||||||
| Other items, net | (213 | ) | 60 | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 291 | 1,231 | ||||||
| Prepaid expenses and other assets | 993 | 1,525 | ||||||
| Deferred contract costs | (60 | ) | (511 | ) | ||||
| Accounts payable and accrued expenses | (981 | ) | (3,092 | ) | ||||
| Deferred revenue | (1,204 | ) | (839 | ) | ||||
| Cash and cash equivalents provided by operating activities | 5,742 | 1,420 | ||||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (344 | ) | (172 | ) | ||||
| Payment of internal-use software development costs | (672 | ) | (511 | ) | ||||
| Cash and cash equivalents used in investing activities | (1,016 | ) | (683 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of finance leases | (7 | ) | (446 | ) | ||||
| Proceeds from exercise of stock options | 87 | 937 | ||||||
| Cash and cash equivalents provided by financing activities | 80 | 491 | ||||||
| Effect of currency exchange rate changes on cash and cash equivalents | (242 | ) | 3 | |||||
| Net increase in cash and cash equivalents | 4,564 | 1,231 | ||||||
| Cash and cash equivalents, beginning of period | 51,785 | 47,185 | ||||||
| Cash and cash equivalents, end of period | $ | 56,349 | $ | 48,416 | ||||
| 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 March 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 32,032 | $ | 31,574 | ||||
| Gross profit (GAAP) | $ | 24,969 | $ | 24,045 | ||||
| Plus: Stock-based compensation expense included within cost of revenue | 319 | 385 | ||||||
| Gross profit (Non-GAAP) | $ | 25,288 | $ | 24,430 | ||||
| Gross margin (GAAP) | 78.0 | % | 76.2 | % | ||||
| Gross margin (Non-GAAP) | 78.9 | % | 77.4 | % | ||||
| Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses | ||||||||
| (unaudited; in thousands) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Operating expenses (GAAP) | $ | 22,876 | $ | 26,345 | ||||
| Less: Stock-based compensation expense included within operating expenses | 2,595 | 3,013 | ||||||
| Operating expenses (Non-GAAP) | $ | 20,281 | $ | 23,332 | ||||
| Reconciliation of GAAP Income (Loss) from Operations and GAAP Operating Margin to Non-GAAP Income from Operations and Non-GAAP Operating Margin | ||||||||
| (unaudited; dollars in thousands) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | $ | 32,032 | $ | 31,574 | ||||
| Income (loss) from operations (GAAP) | $ | 2,093 | $ | (2,300 | ) | |||
| Plus: Stock-based compensation expense | 2,914 | 3,398 | ||||||
| Income from operations (Non-GAAP) | $ | 5,007 | $ | 1,098 | ||||
| Operating margin (GAAP) | 6.5 | % | (7.3 | )% | ||||
| Operating margin (Non-GAAP) | 15.6 | % | 3.5 | % | ||||
| Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income | ||||||||
| (unaudited; in thousands) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net income (loss) (GAAP) | $ | 2,007 | $ | (2,329 | ) | |||
| Plus: Stock-based compensation expense | 2,914 | 3,398 | ||||||
| Net income (Non-GAAP) | $ | 4,921 | $ | 1,069 | ||||
| Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA | |||||||
| (unaudited; in thousands) | |||||||
| Three Months Ended March 31, | |||||||
| 2020 | 2019 | ||||||
| Net income (loss) (GAAP) | $ | 2,007 | $ | (2,329 | ) | ||
| Adjustments: | |||||||
| Interest (income) expense, net | (126 | ) | (183 | ) | |||
| Income tax expense | 220 | 192 | |||||
| Depreciation and amortization expense | 1,478 | 1,546 | |||||
| Total adjustments | 1,572 | 1,555 | |||||
| EBITDA | 3,579 | (774 | ) | ||||
| Stock-based compensation expense | 2,914 | 3,398 | |||||
| Adjusted EBITDA | $ | 6,493 | $ | 2,624 | |||
| Free Cash Flow Reconciliation | |||||||
| (unaudited; in thousands) | |||||||
| Three Months Ended March 31, | |||||||
| 2020 | 2019 | ||||||
| Cash and cash equivalents provided by operating activities | $ | 5,742 | $ | 1,420 | |||
| Less: Purchases of property and equipment | (344 | ) | (172 | ) | |||
| Less: Payment of software development costs | (672 | ) | (511 | ) | |||
| Free cash flow | $ | 4,726 | $ | 737 | |||
| Adjusted EBITDA Guidance Reconciliation | |||
| (unaudited; in millions) | |||
| Second Quarter 2020 | |||
| Floor | |||
| Net income (estimate) | $ | 1.5 | |
| Adjustments (estimates): | |||
| Interest (income) expense, net | (0.1 | ) | |
| Income tax expense | 0.2 | ||
| Depreciation and amortization expense | 1.6 | ||
| Total adjustments | 1.7 | ||
| EBITDA | 3.2 | ||
| Stock-based compensation expense (estimate) | 2.8 | ||
| Adjusted EBITDA guidance (floor) | $ | 6.0 | |