ChannelAdvisor Corporation

And thank you for standing by. Welcome to the Q1 2021 Channel Advisor Early Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Rayford Garabrant, Director of Investor Relations. Sir, please go ahead.

Thank you, Em, and good morning, everyone. Welcome to Channel Advisor's conference call for the first quarter of 2021. With me on the call today are David Spitz, Channel Advisor's Chief Executive Officer, Beth Segovia, Channel Advisor's Chief Operating Officer, and Rich Cornetta, Channel Advisor's Chief Financial Officer. This morning, we issued a press release with details on our first quarter 2021 performance, as well as our outlook for the second quarter of 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 a 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-Q, as well as our other filings, which are available on the SEC website 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, stock-based compensation, and for 2021 only, an acquisition-related contingent consideration fair value adjustment. We also refer to the related measure adjusted EBITDA margin, which is calculated as adjusted EBITDA divided by our revenue, as well as free cash flow, which is operating cash flows less purchases of equipment and capitalized software development costs. 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 flows. We also provide a gap to non-gap reconciliation schedule in our supplemental financial presentation posted on the investor 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.

Thanks, Rayford. Q1 marks another quarter of accelerating revenue growth, strong profitability, product innovation, and significant progress against our strategy to expand our business with brands, with broad momentum across virtually every area of our business and the best revenue growth we've seen since 2015. With continued strong sales execution, fantastic customer retention and expansion, and continued e-commerce tailwinds, We delivered revenue and adjusted EBITDA that both significantly exceeded our guidance for the quarter. I'd like to touch on a few highlights, all of which keep us very bullish about our outlook. First, on top of continued GMV and variable revenue strength, our continued strong execution produced the third consecutive quarter of accelerating total revenue growth to 22% year-on-year and subscription revenue growth to 17% year-on-year. Based on the strong trends we've seen in sales and revenue retention, we're increasing our expectation for year-on-year subscription revenue growth to the upper teens for the second quarter. We view accelerating growth in subscription revenues as an important indicator of the underlying strength of our business, as year-on-year comparisons of GMV and variable revenue in the second quarter and the rest of the year will be harder as we lap the effects of COVID-19. Having said that, GMV growth was very strong in the first quarter at 56% year-on-year, accelerating in March, and GMV volumes remained elevated through April, and so there are early indications that e-commerce spending has remained robust despite entering a period of tougher year-on-year comps in Q2. Second, our focus on brands also contributed to the acceleration in our revenue. In Q1, revenue from brands increased 39% year-on-year, a significant acceleration from the 27% year-on-year growth we achieved in Q4. Brands represented 36% of our total revenue for the quarter and 42% 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 proportion of our customer base. Third, the momentum created by our sales and services team in 2020 strengthened in the first quarter, helping us achieve our highest net bookings in our history, evidenced in part by a record sequential increase in deferred revenue in the quarter. Much of this was driven by record levels of new logo and expansion activity with brands, which continued to represent the substantial majority of our bookings. Additionally, the efforts of our services team and our platform enhancements have yielded outstanding improvements in overall customer retention in recent quarters. For example, dollar churn in the last couple of quarters has been cut nearly in half compared to the levels we typically saw just a couple of years ago. As we plan to continue to invest in product innovation, enhance our services, and grow our brand customer base, we expect to see ongoing strength in this area. Fourth, we've continued to invest heavily in our platform to deliver value and innovation for our customers. For example, we're aggressively expanding our breadth of supported channels globally and expect to increase the number of supported marketplaces by nearly 80 by the middle of 2022. And this matters because this long tail of marketplaces comprising channels like Zalando, Target+, Shopify, and well over 100 others, continue to grow aggregate GMV in our platform at triple-digit rates year-on-year in the first quarter, and they offer our customers a broadening array of ways to reach consumers. Lastly, even as we lean in and increase our growth investments across sales, services, and product, our financial model has delivered a large percentage of incremental revenue to the bottom line. Year-on-year, adjusted EBITDA for the first quarter was up more than 40%, and operating cash flow was up 46%, and above even our seasonally strong Q4. I want to emphasize, however, that as we see continued opportunity and strength in our business, we expect to continue to invest aggressively in our growth initiatives and intend to invest virtually all of our incremental revenue this year into those opportunities. We have had a very strong balance sheet, solid cash flows, and profitability, and our focus is on leveraging that strength to drive continued growth to serve our customers as they seek to accelerate their digital plans. Speaking of customers, we continue to see a nice balance of new logos and expansions with existing customers. In Q1, we added notable new customers, including Fitbit, ViewSonic, John West Food, Fistler, and strategic partner, Authentic Brands Group, and we expanded our relationship with existing customers like Dockers, Turvis Tumblr, Shiseido, and Gantt AB. Finally, I'd like to highlight a few recent organizational changes. First, we're pleased to welcome Linda Crawford to our Board of Directors. Linda was previously Executive Vice President and CEO of Sales Cloud Products at Salesforce.com, CEO of HelpShift, and Chief Revenue Officer at Optimizely, as well as a member of the Board of Directors at Demandware. With her background, Linda brings over two decades of go-to-market leadership experience to ChannelAdvisor. Given her credentials as a respected business leader in the software industry, Linda will provide valuable strategic insight to our board, and we're excited to welcome her to ChannelAdvisor. Second, I'm thrilled to congratulate Paul Colucci on his promotion to Chief Revenue Officer. Paul has been with us since 2008 in a variety of sales leadership roles and in the last two years has led a significant improvement in our U.S. and Amina sales operations as we've posted record results in these regions in recent quarters. With this promotion, Paul assumes responsibility for Asia-Pacific and is now responsible for our global sales and business development function. With an increasing base of global customers and partners, including many with expansion plans in Asia-Pacific, We think this is the right time to consolidate our sales leadership under Paul, and I cannot think of anyone more deserving of the role. So congratulations, Paul. Lastly, I'd also like to say thank you to Diana Allen, our general counsel, who, as we've previously announced, will be transitioning to a senior advisor role on June 1st. Diana's been a key member of the executive team and a trusted partner since 2014, who's executed her role with aplomb for the last seven years as we transitioned from a newly minted public company to a more mature operation. We and I are grateful for her many contributions. I'm also excited to welcome Diana's successor, Kathy Twitty, as our new general counsel, also effective June 1st. Kathy has deep experience in the legal field, has been general counsel for several companies, and also has substantial experience in the software industry. Diana will remain a senior advisor for the foreseeable future, so we're confident that we'll enjoy a smooth transition in our legal function over the next number of months. So Kathy, welcome to the team, and we look forward to your contributions. And with that, I'll turn it over to Beth.