ChannelAdvisor Reports Fourth Quarter and Full Year 2019 Results; Revenue Achieves High End of Guidance and Record Adjusted EBITDA Significantly Exceeds Guidance

RESEARCH TRIANGLE PARK, N.C., Feb. 12, 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 fourth quarter and full year ended December 31, 2019.

“We are very pleased with our fourth quarter performance,” said David Spitz, Chief Executive Officer of ChannelAdvisor. “Revenue came in at the high end of our guidance range and Adjusted EBITDA substantially exceeded our guidance range, demonstrating our ability to increase the efficiency of our business and to drive solid margin improvement. As we enter 2020, we believe we are well-positioned to improve our revenue growth due to our focus on brands, our increased sales capacity, and our planned launch of Starter Edition with ShipStation.”

Fourth Quarter 2019 Financial Results

  • Revenue:  Total revenue was $34.8 million for the fourth quarter 2019, flat on a reported and constant currency basis compared with the year-ago period. Fixed subscription fees were $26.4 million, or 76% of total revenue, an increase of 3% from the year-ago period. Variable subscription fees were $8.4 million, or 24% of total revenue, a decrease of 8% from the year-ago period.

  • Gross Profit:  GAAP gross profit was $27.6 million, representing gross margin of 79% for the fourth quarter 2019, compared with $27.2 million and 78%, respectively, for the year-ago period. Non-GAAP gross profit was $27.9 million, representing an 80% non-GAAP gross margin for the fourth quarter 2019, compared with $27.5 million and 79%, respectively, for the year-ago period.

  • Net Income:  GAAP net income was $5.4 million for the fourth quarter 2019, compared with $0.6 million for the year-ago period. Diluted GAAP net income per share was $0.19 based on 28.9 million weighted average shares outstanding for the fourth quarter 2019, compared with diluted GAAP net income per share of $0.02 based on 28.7 million shares outstanding for the year-ago period.

  • Adjusted EBITDA:  Adjusted EBITDA, a non-GAAP measure, was $9.4 million for the fourth quarter 2019, compared with $5.4 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 Balance and Free Cash Flow:  Cash and cash equivalents totaled $51.8 million as of December 31, 2019, compared with $47.2 million as of December 31, 2018. Cash generated from operations was $5.5 million and $13.0 million for the three months and year ended December 31, 2019, respectively, compared with $0.1 million and $1.2 million for the year-ago period. Free cash flow, a non-GAAP measure, was $4.5 million and $9.3 million for the three months and year ended December 31, 2019, respectively, compared with $(0.6) million and $(1.7) million for the three months and year ended December 31, 2018, respectively.

Full Year 2019 Financial Results

  • Revenue:  Total revenue was $130.0 million for 2019, a decrease of (1.0)% on a reported basis and flat on a constant currency basis compared with the prior year. Fixed subscription fees were $103.4 million, or 79.6% of total revenue, an increase of 3.3% from the prior year. Variable subscription fees were $26.6 million, or 20.4% of total revenue, a decrease of (14.6)% from the prior year.

  • Gross Profit:  GAAP gross profit was $101.0 million, representing a 77.7% gross margin for 2019, compared with $101.7 million and 77.5%, respectively, for the prior year. Non-GAAP gross profit was $102.2 million, representing a 78.6% non-GAAP gross margin for 2019, compared with $102.6 million and 78.2%, respectively, for the prior year.

  • Net Income (Loss):  GAAP net income was $3.5 million for 2019, compared with a GAAP net loss of $(7.6) million for the prior year. Diluted GAAP net income per share was $0.12 based on 28.8 million weighted average shares outstanding for 2019, compared with diluted GAAP net loss per share of $(0.28) based on 27.1 million shares outstanding for the prior year.

  • Adjusted EBITDA:  Adjusted EBITDA, a non-GAAP measure, was $20.2 million for 2019, compared with $9.8 million for the prior year.

Operating Highlights

  • Continued Revenue Mix Shifts towards Brands:  Revenue from brands, a key customer segment, represented 28% of fourth quarter and 26% of 2019 total revenue compared to 24% and 22% in the respective periods in 2018.

  • Strategic Partnership with ShipStation:  Entered into a strategic partnership with ShipStation, a wholly-owned subsidiary of Stamps.com and a leading technology provider in the shipping and logistics sector, to be the first partner to take ChannelAdvisor Starter Edition to market. This new offering is a simplified, lower-cost version of the ChannelAdvisor core marketplaces platform designed for smaller brands and retailers and to be distributed through channel partners. The commercial launch of ChannelAdvisor Starter Edition is expected to occur in the second quarter of 2020.

  • Improved Average Revenue per Customer (ARPC):  ARPC was $47,891 for 2019, an increase of 3.5% from the prior year due to the focus on a platform approach for enterprise customers and brands. Brands average revenue per customer increased 13% in 2019 compared to 2018 and was 33% higher for brands customers than for retail customers in 2019.

  • Customer Details:  Expanded relationships with notable customers including Bling Jewelry, Crazy Dog T-Shirts, eLuxury, FullBeauty, Randa, Rocky Brands, and Rue Gilt Groupe in the fourth quarter 2019. Total customer count was 2,603 as of December 31, 2019, compared with 2,718 as of September 30, 2019 and 2,833 customers as of December 31, 2018. The decline in customer count was predominantly due to a decline in the number of small retail customers as well as the anticipated decline in customers based in China following our office closure in this market in July 2019.

Financial Outlook

Based on information available as of today, ChannelAdvisor is issuing guidance for its first quarter and full year 2020.

(in millions, except percentages)Q1 2020 Full Year 2020
Revenue$31.3 - $31.7 $130.0 (minimum)
Adjusted EBITDA$4.0 - $4.5 $20.0 (minimum)
  As a Percentage of Revenue (at the midpoints for Q1)13%  15%
Stock-based Compensation Expense$2.8 - $3.1 $10.7 
Weighted Average Shares Outstanding28.2   28.5 

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 2019 Financial Results Conference Call
When:Wednesday, February 12, 2020
Time:8:00 a.m. ET
Live Call:(855) 638-4821, Passcode 2649277, Toll free
 (704) 288-0612, Passcode 2649277, 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, stock-based compensation expense, and for the three months and year ended December 31, 2019, non-recurring severance and related costs. 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 and for the three months and year ended December 31, 2019, non-recurring severance and related costs.

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 first quarter and full year 2020, 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, 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 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.

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,
 2019 2018
Assets(unaudited)  
Current assets:   
Cash and cash equivalents$51,785  $47,185 
Accounts receivable, net of allowance of $733 and $652 as of December 31, 2019 and 2018, respectively22,126  23,436 
Prepaid expenses and other current assets10,452  9,248 
Total current assets84,363  79,869 
Operating lease right of use assets11,128   
Property and equipment, net9,597  12,007 
Goodwill23,486  23,486 
Intangible assets, net1,285  1,894 
Deferred contract costs, net of current portion12,810  11,336 
Long-term deferred tax assets, net3,584  4,162 
Other assets614  1,515 
Total assets$146,867  $134,269 
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$409  $1,598 
Accrued expenses8,577  9,358 
Deferred revenue21,000  24,205 
Other current liabilities6,431  3,569 
Total current liabilities36,417  38,730 
Long-term operating leases, net of current portion9,767   
Long-term finance leases, net of current portion27  1,404 
Lease incentive obligation  2,154 
Other long-term liabilities1,007  2,343 
Total liabilities47,218  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 December 31, 2019 and 2018, respectively
   
Common stock, $0.001 par value, 100,000,000 shares authorized, 28,077,469 and
27,347,115 shares issued and outstanding as of December 31, 2019 and 2018, respectively
28  27 
Additional paid-in capital278,111  271,550 
Accumulated other comprehensive loss(1,740) (1,707)
Accumulated deficit(176,750) (180,232)
Total stockholders' equity99,649  89,638 
Total liabilities and stockholders' equity$146,867  $134,269 



 
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,
2019 2018 2019 2018
 (unaudited) (unaudited) (unaudited)  
Revenue$34,775  $34,789  $129,959  $131,218 
Cost of revenue (1) (2)7,132  7,567  29,008  29,501 
Gross profit27,643  27,222  100,951  101,717 
Operating expenses (1) (2):       
Sales and marketing12,005  14,295  52,813  60,080 
Research and development4,039  5,370  19,200  22,359 
General and administrative5,864  6,937  25,136  26,784 
Total operating expenses21,908  26,602  97,149  109,223 
Income (loss) from operations5,735  620  3,802  (7,506)
Other income (expense):       
Interest income (expense), net155  159  754  510 
Other income (expense), net(353) 7  (385) 9 
Total other income (expense)(198) 166  369  519 
Income (loss) before income taxes5,537  786  4,171  (6,987)
Income tax expense117  179  689  614 
Net income (loss)$5,420  $607  $3,482  $(7,601)
Net income (loss) per share:       
Basic$0.19  $0.02  $0.12  $(0.28)
Diluted$0.19  $0.02  $0.12  $(0.28)
Weighted average common shares outstanding:       
Basic28,069,017  27,330,983  27,886,278  27,138,274 
Diluted28,926,517  28,731,489  28,816,977  27,138,274 
        
(1) Includes stock-based compensation as follows:       
Cost of revenue$250  $304  $995  $911 
Sales and marketing612  661  2,385  3,144 
Research and development202  567  1,898  2,152 
General and administrative912  1,043  3,698  4,391 
 $1,976  $2,575  $8,976  $10,598 
        
(2) Includes depreciation and amortization as follows:       
Cost of revenue$995  $939  $3,942  $3,610 
Sales and marketing168  226  775  884 
Research and development76  91  353  371 
General and administrative291  329  1,266  1,229 
 $1,530  $1,585  $6,336  $6,094 



 
ChannelAdvisor Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
 Year Ended December 31,
 2019 2018
 (unaudited)  
Cash flows from operating activities   
Net income (loss)$3,482  $(7,601)
Adjustments to reconcile net income (loss) to cash and cash equivalents provided by operating activities:   
Depreciation and amortization6,336  6,094 
Bad debt expense1,147  991 
Stock-based compensation expense8,976  10,598 
Deferred income taxes531  493 
Other items, net118  (851)
Changes in assets and liabilities:   
Accounts receivable361  2,634 
Prepaid expenses and other assets892  10,303 
Deferred contract costs(3,146) (6,730)
Accounts payable and accrued expenses(2,306) (10,936)
Deferred revenue(3,383) (3,765)
Cash and cash equivalents provided by operating activities13,008  1,230 
Cash flows from investing activities   
Purchases of property and equipment(986) (2,045)
Payment of software development costs(2,721) (894)
Cash and cash equivalents used in investing activities(3,707) (2,939)
Cash flows from financing activities   
Repayment of finance leases(2,209) (2,241)
Proceeds from exercise of stock options974  1,106 
Payment of statutory tax withholding related to net-share settlement of restricted stock units(3,389) (2,959)
Cash and cash equivalents used in financing activities(4,624) (4,094)
Effect of currency exchange rate changes on cash and cash equivalents(77) (434)
Net increase (decrease) in cash and cash equivalents4,600  (6,237)
Cash and cash equivalents, beginning of year47,185  53,422 
Cash and cash equivalents, end of year$51,785  $47,185 


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,
 2019 2018 2019 2018
Revenue$34,775  $34,789  $129,959  $131,218 
        
Gross profit (GAAP)$27,643  $27,222  $100,951  $101,717 
Plus: Stock-based compensation expense included within cost of revenue250  304  995  911 
Plus: Non-recurring severance and related costs within cost of revenue    238   
Gross profit (Non-GAAP)$27,893  $27,526  $102,184  $102,628 
Gross margin (GAAP)79.5% 78.2% 77.7% 77.5%
Gross margin (Non-GAAP)80.2% 79.1% 78.6% 78.2%


Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses
(unaudited; in thousands)
 Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
Operating expenses (GAAP)$21,908  $26,602  $97,149  $109,223 
Less: Stock-based compensation expense included within operating expenses1,726  2,271  7,981  9,687 
Less: Non-recurring severance and related costs within operating expenses344  587  1,072  587 
Operating expenses (Non-GAAP)$19,838  $23,744  $88,096  $98,949 


Reconciliation of GAAP Income (Loss) from Operations and GAAP Operating Margin
  to Non-GAAP Income from Operations and Non-GAAP Operating Margin
(unaudited; in thousands)
 Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
Revenue$34,775  $34,789  $129,959  $131,218 
        
Income (loss) from operations (GAAP)$5,735  $620  $3,802  $(7,506)
Plus: Stock-based compensation expense1,976  2,575  8,976  10,598 
Plus: Non-recurring severance and related costs344  587  1,309  587 
Income from operations (Non-GAAP)$8,055  $3,782  $14,087  $3,679 
Operating margin (GAAP)16.5% 1.8% 2.9% (5.7)%
Operating margin (Non-GAAP)23.2% 10.9% 10.8% 2.8%


Reconciliation of Net Income (Loss) to Adjusted EBITDA
(unaudited; in thousands)
 Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
Net income (loss)$5,420  $607  $3,482  $(7,601)
Adjustments:       
Interest (income) expense, net(155) (159) (754) (510)
Income tax expense117  179  689  614 
Depreciation and amortization expense1,530  1,585  6,336  6,094 
Total adjustments1,492  1,605  6,271  6,198 
EBITDA6,912  2,212  9,753  (1,403)
Stock-based compensation expense1,976  2,575  8,976  10,598 
Non-recurring severance and related costs464  587  1,429  587 
Adjusted EBITDA$9,352  $5,374  $20,158  $9,782 


Free Cash Flow Reconciliation
(unaudited; in thousands)
 Three Months Ended December 31, Year Ended December 31,
 2019 2018 2019 2018
Cash and cash equivalents provided by operating activities$5,494  $128  $13,008  $1,230 
Less: Purchases of property and equipment(230) (459) (986) (2,045)
Less: Payment of software development costs$(749) $(315) (2,721) (894)
Free cash flow$4,515  $(646) $9,301  $(1,709)


Adjusted EBITDA Guidance Reconciliation
(unaudited; in millions)
 First Quarter 2020 Full Year 2020
 Low High Minimum
Net (loss) income (estimate)$(0.4) $(0.1) $3.0 
Adjustments (estimates):     
Interest (income) expense, net(0.1) (0.1) (0.5)
Income tax expense0.2  0.1  0.6 
Depreciation and amortization expense1.5  1.5  6.2 
Total adjustments1.6  1.5  6.3 
EBITDA1.2  1.4  9.3 
Stock-based compensation expense (estimate)2.8  3.1  10.7 
Adjusted EBITDA guidance$4.0  $4.5  $20.0 

 

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