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spk01: 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.
spk04: 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.
spk09: 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.
spk00: Thank you, David, and good morning, everyone. I'm thrilled to be able to share with you today that Q4 marked a strong finish to an excellent year as we achieved continued progress on our commitment to enable customer success. Last quarter, we mentioned that churn measured in dollars had been reduced to the best levels in almost seven years, and we improved upon that in Q4. Expansions with existing customers skewed heavily towards our brand clients showed continued strong commitment to our platform and, again, increased significantly year over year. This is a testament to the numerous ways in which Channel Advisor is helping customers achieve their online commerce goals. Expansions and reduced churn are important drivers of sustained growth, and it's encouraging to see the trends moving in such a positive direction. This improvement is rooted in actions we've taken to improve the customer experience. We have focused on client-specific account planning and goal achievement, delivering a more intentional and improved first-year experience for our new clients, launching an all-new knowledge center and improved in-app guidance to help clients make critical decisions and adopt key features, and providing thought leadership through a steady flow of webinars, blog posts, and white papers to provide clarity amidst the chaos. 2020 was a clearly terrific year for improving client success, and I am proud of the progress we achieved with our customers. What's most exciting, however, is that our initiatives are just getting started. As we move into 2021, we have new projects in the works to strengthen our capabilities further. In addition to staying the course with our plan to drive further improvement and first-year renewal, we're launching a new strategic initiative to transform our enterprise level of service. Our success in attracting large brand customers has created the opportunity to expand our business, increase our depth of engagement, and cultivate stickier relationships. We are making meaningful investments across the services organization. increasing account management coverage to enable deeper relationships and opportunity identification, increasing managed services capacity to enable our teams to go deeper with execution, and adding new roles to customize solutions, manage accelerated expansion plans, and provide enhanced guidance for online cross-channel strategies, all to raise our game in terms of how we enable our largest brand clients. We've also strengthened our team with the recent hiring of Amy Rumford as VP of Global Services. Amy is a seasoned executive with nearly two decades of experience in the tech industry and has spent a significant portion of her career serving large enterprise customers and is passionate about making them successful. Let me now share an innovation update regarding new platform capabilities we've recently released. Enabling brands to accelerate their digital transformation and achieve their e-commerce objectives remains our clear priority. Our product development is focused on generating insights through enhanced analytics, optimizing success on and across channels, enabling expansion, and improving the in-client experience. New enhancements to the channel health console empower sellers to monitor the health and performance of their fulfillment channels closely, in addition to their marketplaces and feeds. This provides relevant cross-channel and platform visibility and opportunities to optimize. Brands can now utilize Channel Advisor's managed services for Amazon's demand-side platform to amplify their brand presence. And continuing to focus on expansion, Channel Advisor added new marketplaces, including Amazon Sweden, Spartu and Darty in France, Pacefur in the U.S., and Backmarket in five countries. as well as new or expanded first-party dropship connections with Macy's, Walgreens, and Fantastic Furniture. In 2021, we intend to accelerate this addition of new channels with a particular focus on EMEA and Asia Pacific. As David mentioned earlier, the GMV transacted on the long tail of marketplaces has grown at an impressive rate. Our brand clients are accelerating their digital transformation and looking to expand their reach with more channels fast. We intend to be right there working alongside them to enable this expansion. This investment includes additional resources across business development, product management, engineering, and services to enable the speed of integration and onboarding as well as ongoing support of clients. We are super energized to partner with our brand clients to help them expand their reach. A recent case study available on our website demonstrated our growing appeal to brands involving our brand analytics offering, which was added with the acquisition of Blueboard. For Newell Brands, a consumer and commercial products manufacturer that owns more than 150 brands, including Rubbermaid and Crock-Pot, nearly 100 online and offline channels play an equally important role in the success of its baby jogger division. As a result, it's critically important to craft the right assortment and maintain proper pricing, as well as build and maintain harmony across online and offline channels. Baby Jogger notes that the Channel Advisor brand analytics platform has made a tremendous difference in its ability to do just that. The software is used to regularly supervise the state of Baby Jogger's distribution online, specifically to monitor daily, weekly, and monthly trends at the product and retailer levels. To quote a sales manager who works exclusively with independent retailers, without Channel Advisor brand analytics, I would be blind. It would be almost impossible to check these metrics manually, so it definitely opens my eyes and helps me to understand what's happening in the marketplace. Tracking partners over time, Newell has identified patterns. They can see who is driving sales activity, where it's coming from, and then take action to help ensure retailers adopt more products and diversify their offerings. By working closely with Channel Advisor, Baby Jogger was able to increase the number of retailer product URLs by more than 50%, open 11 new in-store retailers, and reactivate five. Empowering brands is what Channel Advisor is all about. To summarize, 2020 was an awesome year in terms of execution. We made great strides by strengthening our offering and enhancing our service levels. These efforts have paid off by driving improvements in sales to new customers, expansions with existing customers, and overall retention. We believe this positive momentum, combined with our exciting initiatives for 2021, position us for more good things to come. With that, I'll pass it to Rich now to provide a more detailed update on our financial performance. Rich?
spk03: Thank you, Beth, and good morning, everyone. Well, it's certainly exciting to use the terms record-breaking and historic so many times to highlight the operational and financial success we achieved in a year we can all agree was unlike any other in our lifetime. We have made significant progress as a company and in terms of strategic investments and overall execution to support our increased brand's customer base, not only through the pandemic, but for the future, where we expect to see continued dependency on e-commerce and our platform to support the shift in consumer shopping habits. Following a strong third quarter where we saw exceptional net bookings performance and a return to subscription revenue growth, the fourth quarter produced even more impressive results, driven by Prime Day in October and the holiday season surge. As David mentioned earlier, both revenue and adjusted EBITDA meaningfully exceeded the guidance we provided in November, culminating with record revenue, exceptional full-year adjusted EBITDA results, and historic operating and free cash flow. Now let's take a closer look at the numbers. Total revenue reached a record $40.3 million in the fourth quarter, up 16% year over year, driven by an acceleration of subscription revenue growth and strong e-commerce volumes. Subscription revenue reached another record at $28.6 million for the fourth quarter, representing an increase of 6% sequentially and 8% year over year. Valuable revenue during the quarter totaled $11.7 million, representing an increase of 40% from the year-ago period. This was once again driven by broad-based year-on-year growth in GMV, as e-commerce spending showed continued strength on top of the holiday season boost. Looking at revenue on an annual basis, total revenue was $145.1 million, returning to year-over-year double-digit growth of 12%. David provided some financial details earlier specific to our brand's customers. What really stands out to me is the strong growth we have seen in subscription revenue from brands, reaching 41% of our total subscription revenue for Q4, up 600 basis points from the prior year period. I'd like to point out a few additional metrics as they pertain to brands. During 2020, we increased our Net Brands customer count by 37%, And average revenue for brands customer is now approximately $70,000. So as you can see, brands have continued to become a more significant piece of our business. And we believe that all of this progress, along with the strategic investments planned for 2021 that spoke of earlier, provide line of sight to achieving our stated goal of greater than 50% of our revenue coming from brands by the end of 2022. Moving on to profitability performance. Adjusted EBITDA increased 15% year-over-year to $10.8 million for the quarter, generating an adjusted EBITDA margin of 27% for Q4. For the full year 2020, adjusted EBITDA was a record $36.3 million, and adjusted EBITDA margin improved over 900 basis points for the prior year. It is important to remind everyone that some of our improved profitability is a result of expense savings from the pandemic of approximately $4 million in 2020, for example, from travel and conference savings that we would not expect to continue under a normal operating environment. As we have shown in 2020, even with meaningful investments in the sales organization, we have successfully managed our expense profile and achieved profitable growth. As I'll expand upon in a few moments, after a record-breaking year across many financial metrics, we believe it is advantageous to continue our investment cycle into 2021 with the goal of further improving customer retention and service and supporting top line growth. Now turning to the balance sheet. Consistent with our strong P&L performance, cash and cash equivalents finished at $71.5 million, representing cash generation of $5.2 million during the quarter. And we achieved this despite some large cash outlays in the quarter, associated with our Connect Conference, as well as larger vendor contracts that have annual payment terms. For the full year 2020, cash was up $19.8 million over 2019. And remember, this includes the Blueboard acquisition. We also saw deferred revenue increase for the second quarter in a row, up $1.5 million for Q4, and driven by the strong net bookings performance we achieved in the back half of 2020. As David mentioned earlier, we are confident that now is the time to lean in and pursue top line growth opportunities by investing in our product, our services organization, as well as some incremental investment in sales. We expect to invest at least $6 million in 2021 on the initiatives Beth mentioned earlier. Also, the full year impact of the sales investments we made in the first half of 2020, plus the incremental investments we plan on making in 2021, we'll add at least another $5 million of expense during 2021. Now for our financial outlook. While overall GMV levels remained elevated, it remains difficult to forecast GMV and variable revenue with any real precision for the full year. Therefore, we are not providing a financial outlook beyond Q1. So for the first quarter of 2021, we are issuing a revenue outlook range of between $37.3 million and $37.7 million, representing year-over-year growth of 17% at the midpoint, and an adjusted EBITDA range of between $6.9 million and $7.3 million. It is important to note that our Q1 outlook reflects low double-digit subscription revenue growth over the prior year, as well as the incremental investments in OPEX I spoke of earlier, of approximately $4 million for the quarter. In addition, as David mentioned, we expect low double-digit subscription revenue growth to continue throughout the year. Finally, at the beginning of last year, we issued a long-term goal of a combined year-over-year revenue growth rate and adjusted EBITDA margin of 25 to 30% by 2022. Given the success we achieved in 2020, as well as the strategic initiatives we have planned in 2021, and our improved revenue growth outlook, we are raising this range to 28% to 32% by the end of 2022. In closing, 2020 was a historic year for Channel Advisor, which we believe will help transition us to the next phase in our company's history with a focus on sustained revenue growth to improve shareholder value while still maintaining healthy margins and strong cash flow. I will now pass the call back to David for some final remarks.
spk09: Thanks, Rich. As we enter our third decade, we are proud of what we've built, but we're also just beginning. E-commerce is a massive market, and coming off a record year, we believe we're better positioned than ever to drive continued growth and industry leadership. And with that, operator, we'll go ahead and open the call to questions.
spk01: Ladies and gentlemen, if you have a question at this time, please press the star and the number one key on your touchtone telephone. One moment, please, for our first question. And our first question comes from the line of Thomas Forte from D.A. Davidson. Your line is open.
spk08: Great. So congrats on the quarter. And the question I had, David, is that there's a lot of capital raising going on specifically aimed at selling on Amazon. So if you look last year, we saw that there was $660 million raised by companies that are buying essentially fulfillment by Amazon sellers. And then this year, Thrasio alone raised $1.25 billion toward the same end. So I wanted to know what you thought that meant industry-wide and then what the specific implications were for Channel Advisor, because I think that's essentially a different way of leveraging Amazon, and leveraging Amazon is one of your greatest core competencies, in my opinion. Thanks.
spk09: Thanks, Tom. Yeah, I think the investments in the space just overall validate the opportunity that's out there. We're tracking about 40 of these. So there's quite a lot, as you point out, there's quite a lot of investment going on, several billion dollars worth. You could argue it's maybe a little bit of a crowded trade and maybe eventually there'll be some consolidation. I think there's a couple of interesting things to watch for. It'll be interesting to see how these companies navigate the Amazon concentration risk. over time. I expect a number of them will want to go multi-channel, which I think creates an opportunity for us. and ultimately how these companies generate consistent what I call alpha over Amazon. So does it become a product or brand picking skill? How much proprietary data do these companies have? What's their sustainable competitive position? So I do think there are some potential longer-term questions to be answered. But overall, I think it helps accelerate the transition to digital for everyone in the space, and I think it will help draw customers our target market, which are larger brands, global brands, to realize that they need to continue to invest aggressively in this space. And I also expect that several of these consolidators will end up being customers of ours, particularly as they seek to go multi-channel. So I see it as a bullish signal.
spk08: Excellent. And then for my follow-up question, I want to talk about something that's complementary. So the last three quarters, if not longer, you've been giving what is my favorite statistic, which I think you referred to today as the long tail of marketplaces and how that's essentially your second biggest marketplace and growing at a fastest rate. So do you see that as just other companies starting to warmly embrace the marketplace model, a general acceptance by consumers of shopping in that manner? So why do you think this trend is so significant? And then is the margin profile for Channel Advisor any different for the long tail of sellers versus Amazon?
spk09: Yeah, it's a great question, and it's probably, to me, one of the most interesting developments last year, particularly towards the end of the year when, as you point out, it became our second largest aggregate marketplace or set of channels. I think it represents a few things. I think It shows that we've had some good success helping our customers expand to new channels. Individually, these aren't necessarily huge. They're not obviously as big as Amazon or Walmart or others, but collectively, they're quite large. The easier we make it for someone to add a third, fourth, fifth, or eighth, or 10th, or 15th channel, the easier it is for our customers to just add incremental exposure to consumers who shop there. What you find is that that long tail tends to be – where we see the most success is on the long tail you see regional-specific marketplaces like, for example, Allegro in Poland or Zalando in Germany. And Zalando is a good example of somebody who dominates in a particular category, so primarily fashion. Right. I think what it goes to show you is there's a really, really vibrant opportunity out there for people to build alternatives to Amazon, whether it be category specific or maybe region or country specific. And the more our brands get in and see the success that they have with marketplaces, as I mentioned earlier in my remarks, the more they want to add additional ones. I mean, there are hundreds and hundreds, if not thousands of marketplaces around the world. And they're, you know, they're different in the Philippines versus South Korea versus India versus South America. And so you have this really, really vibrant ecosystem out there and you add them up and they're pretty significant. So I think it's just this general recognition from customers that this is a great way to just continue to broaden their exposure to more and more consumers worldwide. And that's why we plan to add 80 additional ones this year, which is a substantial increase from where we are today. We have a lot of customers telling us that they want to put everything on Channel Advisor, but we need to add these five marketplaces and APAC, for example, for them to be able to do that. As far as your margin profile question, I don't know that I would say that there's a dramatically different margin profile. Many of these marketplaces connect to us through our access program, so they build the connections to us. and in some cases we do have economic arrangements with the marketplaces depending on what they're trying to achieve. But I don't see it as a negative margin impact for us at all. In fact, I like the idea that it continues to diversify our GMB base and ultimately gives our customers more and more ways to reach consumers.
spk08: Excellent. Thanks for taking my question. Thanks, Tom.
spk01: And our next question comes from the line of Colin Sebastian from Baird. Your line is open.
spk06: Thanks, and good morning, everyone. Maybe a couple of questions for me. David, I wanted to follow up on your comments regarding the long tail. It's kind of a follow-up question, but we're clearly seeing a proliferation of transactional e-commerce capabilities within social platforms, and I know you have some integrations already, but is that a potential additional leg of opportunity for channel management as brands and merchants start to sell more aggressively through apps like Instagram or Pinterest or TikTok, et cetera. And then maybe on the acceleration and growth in Q1 and over the course of the year, I realize the subscription offering is performing very well right now, but I also wonder how much of a role the added stimulus checks in the U.S. or the ongoing lockdowns in certain regions may be contributing on the volume side of the business near term. Thank you very much.
spk09: Thanks, Colin. So on the long tail question, yeah, I absolutely believe that social represents a really, really interesting opportunity, you know, especially in certain categories like beauty being an example where we see some good traction. If I've learned one thing over the many years of being in e-commerce is that you can never fully predict what the next trend or where the next big thing is going to come from. And so that's part of our value to customers is we worry about that and we keep up with things and we stay nimble and we're always working with these partners. in anticipation of what's coming down their roadmaps so that our customers don't have to worry about being caught flat-footed. So I do think there's an opportunity there. I think a lot of that historically has been a little bit more focused on smaller merchants just because it's a little bit easier for them to get going on something like Facebook Marketplace as an example. But for sure, especially, like I said, for certain categories, I think it represents a significant opportunity. To your question about how much of a benefit are we seeing from stimulus, obviously it's a little bit speculative on our part. I can't imagine that it hurts to have more cash going into consumers' pocketbooks. We certainly saw that last April when the first round of stimulus checks went out. I mean, we just saw GMV levels kind of pegged to holiday levels almost to the day that most of those checks were landing in people's accounts. So I think that probably does contribute to some of the GMV tailwinds. I think the reason we're pointing to subscription revenue is we know that for the next few quarters as we lap last Q2 that we obviously don't expect to see the same step function increase in GMV next quarter that we saw last quarter. And so there's probably going to be a little bit of noise in GMV levels and variable revenue. And it's a little bit hard to call, and that's why we're not guiding to the full year. But we are pointing to that subscription revenue growth because, at the end of the day, that really points to more durable, sustainable, longer-term growth, and it indicates the demand for our platform in the form of increased sales and improved retention. So that is a more durable phenomenon, and especially over the next few quarters as we go through some of the noise of the comparables, I think that'll be an important metric for us to continue to share.
spk06: All right. Makes sense. Thanks, David.
spk09: Thanks, Colin.
spk01: And our next question comes from the line of Ryan McDonald of Needham. Your line is open.
spk07: Yeah, good morning, everyone. Thanks for taking my questions, and again, congrats on an excellent year. David, I guess the first one for you, I was really impressed by the comments about the expectation for low double-digit subscription revenue growth throughout fiscal 21. Can you just talk about the visibility you have into that number? And when you think about the mix of what would be driving or the parts that are driving that, what are you seeing in terms of sort of new customer pipeline versus you know, expansion into new marketplaces or cross-sell with Blueboard. I'd love to hear some more commentary on that. Thanks.
spk09: Thanks, Ryan. You know, I think we have decent visibility, and it really pegs to some of the recent performance we've seen in sales and in our revenue retention areas. Obviously, we need to continue to execute at comparable levels to deliver on that expectation, but I feel really good about our pipeline. When we look at, for example, our bookings with brands, About half of those are expansion bookings, roughly speaking. So the fact that we've increased our brand customer count 37% last year is pretty bullish to me. So that customer count growth on brands actually grew faster than revenue. And so, you know, the fact that we're driving more new logos into the business that will generate opportunities for us to further expand with them leaves me pretty bullish. So... So, you know, as far as expanded, you know, GMV and marketplaces and things like that, I don't think we really factored that into our revenue opportunity because we're obviously going to be building out a number of those connections over the course of the next year to 18 months. I expect, you know, there probably will be some revenue benefits from that just given some of the eagerness of some of our customers to attach to those marketplaces. But but that's a little bit harder for us to predict, so we're not really factoring that in at this point. So for me, it's just looking at the basic blocking and tackling of our sales team, our expanded sales capacity, the quota coverage we have coming into this year being strong and above where our targets are. It feels like we've been executing really well. Obviously, we have to continue to execute, but I think the results we've had in the last couple quarters give us that confidence.
spk07: Got it. And I guess a follow-up on the GMV trends, obviously, you know, we're still early and not quite seeing what the impact of stimulus will be. But I'm curious to know, as you look through the month of January, have you been starting to get a sense of what perhaps a new normal or more normalized environment looks like sort of post-COVID and post a very strong year of growth?
spk09: Yeah, January GMV growth was pretty strong. It was a significant step up from December. It wasn't quite at November levels that we saw, but it was pretty close. And in fact, we saw a bit of an acceleration towards the end of January. So, you know, that seems pretty bullish to me. And to go back to kind of Colin's point about stimulus, right, it's always hard to know, you know, how much of that is influencing things. But so far through the, you know, through January of this quarter, it looks like GMB levels have remained pretty strong. And, of course, the stimulus being discussed now that may pass in some form in the next few weeks probably comes with a fairly significant additional amount of money that flows directly to consumers. So when that happens and how much it is and whether that finds its way to e-commerce or... or Robin Hood or other places. That's hard to predict. But it seems more likely than not that there'll be some additional stimulus flowing in the not distant future.
spk07: Excellent.
spk09: Thanks very much. Absolutely. Thanks, Ryan.
spk01: And our next question comes from the line of Matt Pfau of William Blair. Your line is open.
spk05: And congrats on the strong results.
spk09: Hey, Matt, your audio is up. Can't quite hear you.
spk05: Can you hear me now?
spk09: Yep. Great.
spk05: Sorry about that, guys. Can you hear me? Yep. Okay. Yeah, so I wanted to ask on the marketplaces you're adding for 2021, obviously a big number there. When you think about adding those, maybe just give us an idea of, what's involved there, how difficult it is. And I guess what I'm trying to get at is the competitive differentiation there and how difficult it is for platforms you may be competing against to add marketplaces at the rate you are.
spk09: Yeah, thanks, Matt. I think it's one of our strongest differentiators today, just the breadth of marketplaces that we support around the world. And so I think when I talk about expanding our lead, this is an example of what I'm talking about. So A number of marketplaces connect to us directly, in which case the effort on our part is not huge. But what those marketplaces want is access to a really high-quality seller base to provide a great consumer experience. And so for a lot of the ones that we support today, they have connected to us through our API, through our access program, and we manage them through our partner ecosystem. In the case of the 80 that we plan to add, I suspect there will be some of that. I also suspect there will be some integrations that we build. For example, we are seeing heavy demand for marketplace expansions in Asia Pacific, and because we don't have as many customers in APAC, A number of those marketplaces wouldn't necessarily come to us to say, hey, how do we connect to you? Because we don't have those local suppliers. So what we do have is these global brands that want to go in and sell on these marketplaces. And so I expect that for some of these, we'll actually build the infrastructure ourself. I mean, we've been doing this for a long time. And so I think we're pretty good at it. But it does represent a few million dollars of investment on our part really to try to accelerate how do we get as many of these onboarded as quickly as possible. Because, again, when we look at the opportunity, both in terms of GMV and just the customer demand we have, we think that's an investment that will pay off multiple times over in the years to come. So I think we already have a pretty good differentiated position when it comes to the breadth of marketplace that we support. And the fact that we're going from, you know, well over 100 and adding 80 more, I think just extends our lead in that front.
spk05: Got it. And then, For the investments for 2021, in terms of headcount, it seems like the primary focus is around your service and support and customer success organization. What about in terms of sales headcount? Where are you at in terms of sales coverage heading into 2021 and any details around hiring in that area?
spk09: Yeah, I think we're pleased with where we are at the beginning of the year in terms of sales, what we call quota capacity or sales coverage. We do expect to invest incrementally because obviously we already have our eyes towards 2022 and a lot of what we do this year will set the stage for 2022. So I do expect some incremental investment on the sales capacity side just to continue to drive the momentum that we're seeing, but not to the same extent that we did a year ago when we were really trying to close the gap on sales capacity. And then beyond that, obviously, investments in R&D, like I've spoken about, we think there's some significant opportunities on the innovation side to extend our lead. And then on the services side, and Beth may have a comment on this, but what's interesting is when we work with brands, we typically initially work with You know, just a portion of that brand. Maybe they've got a portfolio of brands. Maybe we're working with them in one country, but they operate in 20 countries. You know, or maybe we're working with them in our shoppable media product, but they don't use us for analytics or marketplaces or whatever mix they're using. We just think that, and we've seen this already, that the opportunity to get in more closely and more strategically with a brand and help them navigate their digital transformation, we think we're probably maybe low double digits penetrated just in our existing customer base. So we think the investment here is really focused on how do we make sure that we are really becoming strategic to our customers? How do we become familiar with their organization from top to bottom? and really give them what I would call the service coverage. If last year was the focus on sales coverage, this year is the focus on service coverage to really make sure they see success and we understand how to help them strategically because we do think the opportunity to expand with them is pretty substantial. So I don't know if, Beth, you want to add anything to that, but that's our focus on that front.
spk00: Yeah, nothing to add. We're just going deeper so we can learn more about their business and find all the ways that they can leverage our capabilities to continue to accelerate their transformation.
spk01: And ladies and gentlemen, once again, if you have a question at this time, simply press the star, then the number one key on your touchtone telephone. Our next question comes from the line of Zach Cummins of B-Rally Securities. Your line is open.
spk02: Yeah, thanks. Good morning. Thank you for taking my questions, and congrats on the strong end to the year. Rich, I just wanted to ask you around the GMV assumptions that you're making for Q1 guidance. I know there's still a few factors up in the air, such as potential stimulus, but we know low double-digit subscription revenue, but kind of how are you anticipating GMV is going to be playing out for the rest of the quarter?
spk03: Yeah, yeah, it's a great question, and good morning. So, you know, we mentioned earlier in our prepared remarks that we are estimating low double-digit growth for the quarter with subscription revenue. So if you were to assume, say, 11% year-over-year growth, that would probably put variable revenue in a range of $8.8 million, something to that effect would which would assume roughly the same growth rate we saw in Q4 and Q3 of last year, around roughly 40%, 41%, 42% growth in variable revenue. So that's how I've modeled out Q1 for our financial outlook.
spk02: Got it. I understand. And then I know a lot of the focus has been on the brand customers and the acceleration there, but David, I wanted to ask you, around your retail customers? How do you expect that to really play out over the next couple of years, especially with you accelerating your focus on these brand customers?
spk09: Yeah, Zach, I think, you know, look, that's an important part of our business. I think the way I would characterize it is it's a more mature part of our business, right? So I don't necessarily expect the retail piece of our business to be the driver of significant growth for us. It obviously provides us with a lot of non-dilutive funding to invest in the areas that we've talked about today that we're investing in. Um, so, you know, it's a, it's a good business. It's mature. Um, but I, you know, if I fast followed five years, 10 years, and I think about what is the commerce landscape look like, and I think COVID is only, you know, amplified this, it, you know, being, being a middleman and selling other people's stuff, uh, is harder and harder, right? Like giving you, it's very, very hard to differentiate. And in particular, when you lose the benefit of having physical stores, you know, the stores have almost become a liability for a number of these as opposed to an asset when everything else is one click away. So when I just look forward five or 10 years, I think it's harder to be sort of a non-differentiated middleman who sells other people's things. We think that the ones who are stronger ultimately are the ones who sell proprietary products, products where they, you know, they own the brand, they own the, you know, the all of the attributes associated with the brand, et cetera. And so that's why we're focusing there. And we think that that longer term for us is the stronger growth engine.
spk02: Understood. And just the final question for me is the other revenue category saw some really strong growth there in Q4. I was wondering if you could give a little insight into what drove that strong growth within the other revenue category and some of your opportunities on the partnership side as we start to think about 2021 and 2022. Sure.
spk09: Yeah, so other, as you probably know, includes our partnership revenue, right? So as I mentioned earlier, we have economic arrangements with a number of our marketplace partners because they want to work with us to, for example, make sure that we adopt certain elements of their roadmap or their technology platform or help them onboard. more brands onto their marketplace. So when you see strong GMV performance, not only is that an indicator that our customers are doing well, but because of those economic arrangements, they also flow partly into our partnership revenue as well. So I think that's a pretty big piece of what you're seeing there. But more strategically, We identified a couple of years ago that expanding our indirect sales efforts and our partnerships was really important for us, and it continues to be important for us. That's an area of continued investment and continued focus for us going forward. We don't want to just completely rely on our direct sales force, which is still relatively small compared to the size of the opportunity. We want to drive more revenue and more opportunity generation through our network of partners. The expansion with XPO Logistics is a good example, right? So like many logistics companies, they're looking for ways to add value-added services for their customers and ultimately help their customers ship more, right? And so we're a perfect partner for someone like them. Got it. I think we lost you, Zach.
spk01: And there are no further questions at this time. I would now like to turn the call over to Mr. Rayford Garabran for closing remarks.
spk04: Thank you, everyone, for joining us today. We look forward to speaking with you again soon.
spk01: Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.
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