ChannelAdvisor Corporation

Ladies and gentlemen, welcome to the Q4 2020 Channel Advisor Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press the star then zero on your touchtone telephone. I would now like to turn the conference over to your host. Mr. Rayford Garbrandt, Director of Investor Relations. Sir, please go ahead.

Thank you, Ludi, and good morning, everyone. Welcome to Channel Advisors Conference Call for the fourth quarter and full year 2020. With me on the call today are David Spitz, Channel Advisors Chief Executive Officer, Beth Segovia, Channel Advisors Chief Operating Officer, and Rich Cornetta, Channel Advisors Chief Financial Officer. This morning, we issued a press release with details on our fourth quarter 2020 performance, as well as our outlook for the first quarter 2021. This press release can be accessed on the investor relations section of our website at ir.channeladvisor.com. In addition, this call is being recorded and a replay will be available after the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issue today. For further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our most recent Form 10-K, as well as our other filings, which are available on the SEC website at SEC.gov. During the course of today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, which excludes depreciation, amortization, income tax expense, interest, and stock-based compensation. For 2020, adjusted EBITDA also excludes transaction costs for our acquisition of Blueboard in the third quarter, while for 2019, it also excludes non-recurring severance and related costs. We also refer to the related measure adjusted EBITDA margin, which is calculated as adjusted EBITDA divided by our revenue. Our press release that we issue today includes GAAP to non-GAAP reconciliations for gross profit, gross margin, operating expenses, operating income, operating margin, adjusted EBITDA, non-GAAP net income, and free cash flow. We also provide a GAAP to non-GAAP reconciliation schedule in our supplemental financial presentation posted on the investment relations section of our website. Finally, at times in our prepared comments or responses to analyst questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to David.

Thank you, Rayford. What a year. We delivered record fourth quarter and full year results as continued strong execution, our expanding business with brands, and record e-commerce volumes drove success for our customers and another quarter of double-digit growth for us. As a result, revenue adjusted EBITDA both significantly exceeded our guidance for the quarter. I'd like to touch on a few highlights, all of which make us very bullish on our outlook. First, our focus on brands continue to pay off with fourth quarter revenue from brands up 27% year on year to 35% of our total revenue and 41% of our subscription revenues. We believe that the superior unit economics we enjoy with brands will continue to positively benefit our long-term financial performance as they grow to represent a larger and larger proportion of our customer base. Second, Our sales and services teams continued to drive very strong results, capping off our best year of net bookings in years, with much of that momentum in the back half of 2020, and most of it with brands, as roughly two-thirds of our gross bookings were with brands. Third, our services team delivered the best year of revenue tension in 2020 that we've experienced as a public company, and we think there's more improvement to be had as we continue to invest in enhancing our services and growing our brand customer base. Fourth, this strong execution yielded another acceleration in subscription revenue growth to 8% year on year. And based on recent performance, we anticipate subscription revenue growth will continue to accelerate to low double digits in the first quarter and for the full year 2021. Fifth, our long tail of marketplaces comprising channels like Zalando, Target Plus, Shopify, and well over 100 others continued to grow GMV on our platform at triple digit rates in the fourth quarter. and for the first time ever was larger than eBay and Walmart for us, and second only to Amazon by volume. Supporting this trend, one of the major customer-driven investments we're planning for this year is to significantly expand our breadth of supported channels, and we expect to add at least 80 additional marketplaces and other channels over the next 18 months. Many of our brand customers tell us they'll add marketplaces as fast as we can add them, and we accept that challenge. Sixth, And I'm sure, in no small part due to our focus on innovation, we were recognized by Digital Commerce 360 as the industry's top channel management platform for the ninth year in a row, highlighting our leadership position and the trust our customers place in us. And lastly, the inherent leverage in our model was on full display in 2020, with full-year adjusted EBITDA exceeding $36 million, up 80% year-on-year, and full-year operating cash flow was over $34 million. Our strong financial performance and execution in 2020 gave us the flexibility to make a number of strategic investments, including our acquisition of Blueboard, a leading shelf analytics platform for brands. We've already seen early results from this acquisition as we landed new customers like Chanel, Gibson Guitars, Curt Manufacturing, and SteelSeries in the quarter, while adding analytics functionality for existing customers like Xerox and Spectrum Brands. More broadly on the sales front, The investment we made to increase sales capacity in the last year really paid off in the back half of 2020 as newer sales reps came off ramp and started producing. We won and expanded business with a number of brands in the fourth quarter, including TCL Electronics, Mabe Canada, Fisher-Pichel Appliances, Calzedonia, and DeFacto, and significantly expanded our strategic partnership with XPL Logistics during the quarter. Overall, we increased our brand customer count by 37% in 2020. We agree with the emerging consensus that consumer behavior has likely been changed permanently by the pandemic, and we believe that e-commerce volumes that we've seen in recent months represent the new normal. Because of this, we've also seen an increased urgency on the part of our customers and prospects to accelerate their digital plans. And in addition to investing in product innovation, we also plan to make significant investments in our service model to help our customers make the right strategic decisions and drive success. 2021 is an investment year for us, and we're excited by it. This year's employee kickoff theme was Think Big, and as we enter our third decade in business, that's exactly what we're doing as we lean into this moment aggressively to expand our lead and remain one of the most respected and trusted partners in e-commerce. With that, I'll turn it over to Beth.