ChannelAdvisor Corporation

Good day, and thank you for standing by. Welcome to the Channel Advisor second quarter 2022 earnings 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 your session, you will need to press star 1-1 on your telephone, and then you will hear an automated message advising you that your hand is raised. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Rayford Gerbrand, Head of Investor Relations. Please go ahead.

Thank you, Hope, and good morning, everyone. Welcome to Channel Advisor's conference call for the second quarter of 2022. 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 second quarter 2022 performance, as well as our outlook for the third quarter and full year 2022. 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 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 issued 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, all of which are reconciled in the press release that we issued today. We also provide a GAAP to non-GAAP 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. Despite the backdrop of slower e-commerce growth, high consumer inflation, and macro uncertainty, we delivered another good quarter in Q2 with solid revenue growth and adjusted EBITDA that again exceeded the high end of our guidance range. These results demonstrate the resilience of our subscription-based revenue model and brand-focused strategy. Although the macro environment is more challenging, we remain optimistic regarding our long-term prospects. For that reason, we were pleased to be able to return some of our surplus capital to our shareholders during the second quarter, retiring about 6% of our shares outstanding through our previously authorized share buyback. And in a sign of continued confidence, our board also authorized an additional $25 million in potential share repurchases, which we will deploy if and when we feel our free cash flow yield presents an attractive opportunity as part of our capital allocation strategy. Now I'd like to walk through a few of the highlights from the quarter. First, our focus on brands continued to pay off, with second quarter revenue from brands up 25% excluding currency impacts. Even more impressive, brand subscription revenue increased 32% net of currency impacts. This represents roughly half of our subscription revenue, an all-time high, and we're getting closer to the point where the majority of our total revenues will come from brands. Because brands offer greater potential for expansion, we believe the strong unit economics we've enjoyed with brands will continue to benefit our results as they grow to represent a higher percentage of our business. Second, our strong overall subscription revenue growth helped us achieve total revenue above the midpoint of our guidance range, despite slowing e-commerce growth and a more challenging macro environment. We continue to expect our year-on-year revenue growth to improve in the back half of the year, starting in Key 3, as we finish lapping those tough year-on-year comparisons in variable revenue, although our revenue growth outlook has been tempered by the impact of foreign currency rates. Third, we've continued to deliver strong value to our customers through ongoing investments in our platform. Our expanding breadth of supported channels has continued to differentiate us, and that's why we maintained our rapid pace of channel expansion in Q2, and we now support over 350 channels globally. Longtail GMV, in aggregate, was again larger than eBay and Walmart for us, second only to Amazon, and again grew much faster than all three. In addition to channel expansion, we continued to broaden our capabilities in the fast-growing area of retail media by launching an integration with Criteo, Beth will elaborate on this and some of the other product innovations we've recently rolled out in a moment. Fourth, our disciplined approach to managing the business resulted in an adjusted EBITDA well above the high end of our guidance range and good cash generation. For the first half of the year, free cash flow exceeded $10 million, and while we continue to evaluate opportunities to deploy our excess capital, we remain committed to a financially disciplined approach and focus on opportunities where we believe that potential returns align with our objectives. Since Amazon Prime Day was held recently, we realized there's a lot of interest regarding the trends we saw across categories and how it translated to GMV for Channel Advisor. Overall, while inflation is on everyone's mind and industry expectations were somewhat muted coming into the event, our data suggests consumers are still spending, even in non-essential discretionary categories. Total GMV growth was solid, led by categories such as baby, clothing, shoes, and accessories, home and garden, and computers and networking. The performance was consistent with our expectations, and supports our view of normalizing variable revenue in the second half of 2022. Lastly, I'm very proud to share that we were recently announced a winner of the Triangle Business Journal's 2022 Best Places to Work Award. This is particularly rewarding because it's our eighth time winning and reflects how deeply we care about our employee experience. It's especially sweet to be a repeat winner as we adapt to a new normal that has challenged all of us. To all of our teammates, thank you. And with that, I'll turn it over to Beth.

Thank you, David, and good morning, everyone. Enabling brands to accelerate digital transformation and achieve their e-commerce objectives remains our priority. We do this by helping our customers connect, market, sell, fulfill, and optimize their e-commerce operations to reach more consumers across every stage of their buying journey. The world of multi-channel commerce is constantly evolving and never rests, which is why we're innovating like never before to help our customers keep pace. The momentum continued to build in Q2, with progress made in releasing new product capabilities, access to more channels, gaining further industry recognition, and earning accolades as an employer. Whether it be our exciting new retail media partnership with Criteo, achieving the distinction of being named an Amazon Ads Advanced Partner, or winning recognition as one of the best places to work in the research triangle area for the eighth time, there's a lot to feel good about. Now, I'd like to walk you through this in a little more detail. One way that multi-channel commerce has evolved rapidly is the proliferation of channels where consumers shop online. To help our customers capitalize, we've been building on our leadership position through rapid channel expansion. With the addition of over 20 new integrations in Q2, Channel Advisor now supports well over 350 channels. New channels added include Bed Bath & Beyond in the U.S. and Canada, Poshmark in the U.S., Trendial in Germany, and Shopee in seven Southeast Asian countries. The Shopee integration is particularly exciting given the strong demand we've seen for greater access to the Asia-Pacific market. Another way that multi-channel commerce is evolving rapidly is in the area of retail media. With retail media, we're witnessing a re-fragmentation of digital marketing, and with that complexity comes a need to help advertisers streamline and optimize advertising campaigns across sites from a single platform, which is exactly what ChannelAdvisor's platform delivers. Our new integration with the Criteo Retail Media API allows brand advertisers to effectively reach new high-impact shoppers by managing and optimizing their retail media campaigns across even more leading retailers. This is a fast-growing area for us, and in fact, we now manage more retail media ad spend across sites like Amazon, eBay, and Walmart than Google ad spend, something unthinkable just a few years ago. That helps explain why we were recently named an Amazon Ads Advanced Partner. Advanced Partner status is granted to firms that have demonstrated experience across the breadth of Amazon ads capabilities and delivered results for advertisers. Advanced partners are in the top 5% of partner-led investments by countries for sponsored ads, and we now qualify for added benefits, including access to select beta programs, tailored training on campaign strategies, and new product releases. Continuous product innovations like these have contributed to cementing our position as the leading multi-channel commerce platform. To see a case study that ties this all together, please visit our website to learn more about our customer, Lexington Company, the Nordic Lifestyle brand. Lexington was interested in leveraging marketplaces to drive growth and new partnerships, but they didn't want to engage channels directly due to the added complexity and time. So they turned to ChannelAdvisor. Lexington initially launched on Amazon, La Redoute, and Zalando, expanding from one to 19 markets in just two years. With help and automation from ChannelAdvisor, Lexington says it can now focus on its core business functions like product and sales instead of spending time on error resolution, mapping, and feeds. By entering marketplaces with support from ChannelAdvisor, Lexington states that it has seen tremendous results, particularly on peak days. Between 2020 and 2021, they experienced an 83% increase in net sales and 400% growth on Black Friday, a terrific example of the power of marketplaces. Our strategy to land and expand with brands was further demonstrated with successes in Q2. We signed new customers such as Brown Foreman, John Paul Mitchell Systems, and McCormick Foods, and our teams grew our business with existing customers like Chanel, Hugo Boss, and Bushnell. To summarize, we have the platform, partners, and people to enable success for our customers. We never rest as we continue to lead numerous initiatives to keep the momentum going. By empowering brands to reach new customers, promote their product offerings, and streamline operations globally, Channel Advisor continues to be well-positioned to capitalize on the positive long-term trends in our industry. With that, I'll pass it to Rich now to provide a more detailed update on our financial performance. Rich?