ChannelAdvisor Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2021 Channel Advisor Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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. Thank you, sir. You may begin.

Thank you, April, and good morning, everyone. Welcome to Channel Advisors' conference call for the second quarter of 2021. 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 second quarter 2021 performance, as well as our outlook for the third 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 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 Forum 10Q, 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 only, adjusted EBITDA excludes transaction costs associated with our July 2020 acquisition of Blueboard, while for 2021 only, adjusted EBITDA excludes the change in fair value of acquisition-related contingent considerations. related 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 flow. We also provide a GAAP to non-GAAP reconciliation schedule in our supplemental financial presentation posted today. on the Investor Relations section of our website. Finally, at times in our prepared comments or responses to analysts' 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. July marked our 20th anniversary in business when our founders, Scott and Aris, started Channel Advisor in 2001, they had a vision that e-commerce would be huge and sellers would need help managing it. And 20 years later, that vision is as true as it's ever been. And so I'd like to thank all of our customers, partners, employees, and shareholders for helping us achieve this milestone, even as we look ahead to the next 20 years. Our momentum continued in Q2, as strong execution, GMV growth, our expanding business with brands, and our growth investments combined to drive record quarterly results. I'm particularly pleased to report that subscription revenue growth accelerated for the fourth quarter in a row to 25% year-on-year, and marketplace GMV grew double digits, indicating durable trends in our business despite tougher comps now that we're lapping a full year of COVID. Overall revenue and adjusted EBITDA both exceeded our guidance for the quarter, and I'll touch on a few of the highlights that keep us bullish on our longer-term growth prospects. First, we maintain double-digit revenue growth despite more difficult year-on-year comparisons, and coupled with continued strong performance in sales and revenue retention, we're increasing our expectation for full-year subscription revenue growth to at least the upper teams. As we've said previously, we view growth in subscription revenues as an important indicator of the longer-term underlying strength of our business. Second, our focus on brands continued to pay off and drive our record revenues. In Q2, revenue from brands increased 39% year-on-year, consistent with what we saw in Q1, and subscription revenue grew a whopping 54% year-on-year, the fastest growth rate we have on record. Brands represented 38% of our total revenue for the quarter, which is up 7 points year-on-year, and represented 44% of our subscription revenue. 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, strong demand for our products strengthened in the second quarter, helping us achieve our highest gross bookings ever. This was driven by strong new logo activity and record expansions with brands, which continued to represent a substantial majority of our bookings. In addition to robust sales momentum, we saw year-on-year improvements in retention, driven by the efforts of our services team and recent platform enhancements. We expect to see ongoing strength in this area as we plan to continue investing in product innovation, enhancing our services, and growing our brand customer base. Fourth, we've continued to invest heavily in our platform to deliver value and innovation for our customers. As we discussed on our Q4 earnings call in February, we're aggressively expanding our breadth of supported channels globally. At the time, we announced we expected to increase the number of supported marketplaces and channels by nearly 80 by the middle of 2020-22. And so far, we're well ahead of that pace. This matters because this long tail, comprising channels like Zalando, Target+, Shopify, and well over 100 others, continued to grow aggregate GMV at a faster rate than our top three marketplaces in the second quarter and was larger than eBay and Walmart for us, second only to Amazon in terms of GMV. So not only does this further extend our lead in the market, helping us attract more customers, but it's also positive because this fast-growing, broad spectrum of channels reduces our sensitivity to slower-growing channels like eBay, and to a certain extent, even Amazon. In short, this diversification is good for our customers and good for us. Fifth, even as we lean in and increase our growth investments across sales, services, and product, our financial model has delivered healthy margins and robust cash flow. Adjusted EBITDA margin for the second quarter was 22%. and operating cash flow for the quarter increased 19% year-on-year to $9.2 million. With over $90 million of cash on hand, no debt, market leadership, and a large market opportunity in front of us, we intend to continue investing with discipline in growth initiatives. I'm also pleased to announce that in conjunction with Connect 2021, our annual conference, specifically curated to help brands and retailers reach more online shoppers, We'll be hosting a virtual analyst day on September 16th at 9 o'clock in the morning Eastern Time. The agenda will include presentations from management and a live Q&A session and a press release with registration details will be issued later today. We're excited about this event and hope to see you there. And lastly, I'm very proud to share that we were just announced a winner of the Triangle Business Journal's 2021 Best Places to Work Award. This is particularly rewarding because it's our seventh time winning and reflects how deeply we care about our employee experience. And it's especially sweet to have won this distinction after a year that challenged all of us. To all of our teammates globally, thank you. And with that, I'll turn it over to Beth.