ChannelAdvisor Corporation
Q2 2020 Earnings Call Transcript

Published: 9 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the ChannelAdvisor's Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference to your speaker today, Raiford Garrabrant, Director of Investor Relations. Please go ahead, sir.

[Raiford Garrabrant:]

Thank you, Victor. Good morning, and welcome to ChannelAdvisor's conference call for the second quarter 2020. My name is Raiford Garrabrant, Director of Investor Relations. And with me on the call today are David Spitz, ChannelAdvisor's Chief Executive Officer; Beth Segovia, ChannelAdvisor's Chief Operating Officer; and Rich Cornetta, ChannelAdvisor's Chief Financial Officer. This morning, we issued a press release with details on our second quarter 2020 performance as well as our outlook for the third quarter 2020. 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 issued 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-K and 10-Q 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, stock-based compensation, and for 2020 only, acquisition costs for the acquisition of BlueBoard and the related measure, adjusted EBITDA margin, which is calculated as adjusted EBITDA divided by our revenue. Our press release that we issued 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 provided 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 for his prepared remarks.

[David Spitz:]

Good morning, everyone, and thank you, Raiford. Our second quarter was one for the record books as the COVID-19 pandemic dramatically altered consumer behavior and shifted a significant amount of consumer spending online. We drove well over $1 billion in GMV in each month of the second quarter for our customers, well in excess of the most recent fourth quarter, yielding a substantial uptick in variable revenue and driving record quarterly revenues of $37.4 million, up 17% from the same period last year and substantially above our initial guidance for the quarter. In addition, the scalability of our business model was on full display as virtually all of that revenue upside fell to the bottom line, resulting in record quarterly adjusted EBITDA of $11.6 million, nearly double our initial guidance for the quarter. I'd like to express my gratitude to all of our team members who, despite facing the disruption of adapting to working remotely, provided steady hands and helped our customers navigate this unusual period. Our systems and our people handled this expected surge in volume flawlessly and once again highlighted why customers choose ChannelAdvisor as their strategic e-commerce partner. Our continued strong cash flow also bolstered our balance sheet and gave us the opportunity to make strategic growth investments. In particular, we announced on July 23, the acquisition of BlueBoard, a leading analytics platform for brands. Dozens of leading global brands, including L'Oreal, Samsung and Newell Brands rely on BlueBoard to provide them with real time, actionable insights into how their products are performing across a variety of digital channels, and this is a perfect complement to our platform as we continue to expand and enhance our capabilities for brands. We believe that by deploying BlueBoard, now known as ChannelAdvisor Brand Analytics, across our global sales team, we can significantly accelerate its position in the market and draw more brands to our platform. We remain committed to running our business in a financially disciplined manner into maintaining a strong balance sheet. Our upfront cash outlay to acquire BlueBoard was $9 million, most of which was covered by our cash generation in the second quarter. Despite an uncertain environment, our strong financial position, profitability and cash flow have allowed us to react rationally and thoughtfully to the rapidly evolving circumstances and lean into the situation, which has paid off. For example, while some of our competitors were forced to reduce staff in the second quarter, we invested in additional sales and services headcount. In the spirit of enhancing our financial flexibility, we also announced this morning a $25 million credit facility to bolster our liquidity. I want to be very clear that we do not currently have any plans to draw on this facility. However, given our financial strength, the cost of this facility is minimal and gives us additional liquidity should the need arise in the future. We believe the best time to enhance liquidity is when you don't need it, and that's exactly what we've done. And Rich will provide more details in his prepared remarks. Turning to sales. I'm pleased to report that bookings in the second quarter were up 45% compared to the first quarter, reflecting healthy demand for our solutions and the ramping of our recently expanded U.S. sales team and representing a solid rebound coming off the COVID-related disruptions we saw in the last couple of weeks of March. We've enjoyed continued strong interest in our solution from brands and retailers as e-commerce has become even more important. In fact, pipeline generation in the second quarter was the best we've seen in several quarters, and we added new brands, including Tempur-Sealy and Bushnell and enjoyed near-record expansion bookings with existing customers like ASICS. Additionally, revenue retention was better than we expected in the second quarter, even factoring in the roughly $1 million in COVID related relief we offered to customers facing distress or disruption early in the quarter. So in addition to the strong e-commerce volumes we saw in the second quarter propelling our financial results, we're pleased to have also enjoyed solid execution as well and we are bullish that we are well positioned for the back half of 2020. As we think about the outlook for e-commerce going forward, forecasting remains difficult. In the near term, we expect e-commerce volumes to remain elevated, although perhaps moderated somewhat from what we experienced in the second quarter. In July, we again saw marketplace GMV exceed $1 billion and eclipse December 2019 levels, our fourth such consecutive month, although down about 8% compared to the average monthly GMV levels we saw in the second quarter. However, despite this modest deceleration compared to the second quarter, we still saw average daily GMV well above pre-COVID levels through the month of July. For comparison, July GMV was up 40% compared to July 2019, even though Amazon Prime Day occurred in July last year and has been postponed this year. Whether this strength in GMV we saw in July continues into August and September is difficult to predict, and with potential new flare-ups of COVID-19 in various geographic regions and continued macroeconomic uncertainty, it remains difficult to know how things will play out over the next few months, particularly the fourth quarter. For these reasons, we're going to stick with shorter-term floor guidance for the time being. Longer term, many industry analysts have taken a position that heightened e-commerce penetration is likely to remain permanent as consumer behaviors and shopping habits have shifted online. Essentially the several years of e-commerce trends have been pulled forward to the present. We agree with this assessment and believe we're well positioned to benefit from these trends. Lastly, I'd like to take the opportunity to comment on our Diversity, Equity and Inclusion efforts. ChannelAdvisor has a long and fostered culture of inclusion based on merit and results, but recent events caused us to reflect and consider what more we could be doing to advance the causes of Diversity, Equity and Inclusion. We began by hosting 7 hour-long listening sessions with various employee groups, which I found both inspiring and eye opening. We've since launched an internal task force and several initiatives to make a long-term impact on diversity at ChannelAdvisor. And in supporting related social causes, such as recruiting at historically black colleges and universities, implementing blind resumes, enhancing antibias training throughout the organization and making election day a paid holiday in the U.S. We have more work to do but are committed to doing our part in supporting and advocating for social and economic justice for all people because we believe it is not only moral to do so, but that it is also good for business. In conclusion, I'd like to offer a warm welcome to our newest team members from BlueBoard and our newest location in Paris, and to thank our employees and customers once again for helping us to achieve exceptional results in the second quarter. And with that, I'll turn it over to Beth.

[Elizabeth Segovia:]

Thank you, David, and good morning, everyone. In addition to the very strong financial results we delivered in Q2, I'd like to walk you through the progress we've made across our strategic pillars. Our first strategic pillar is win in the brand segment. As this pandemic has illustrated, brands are generally more resilient and better positioned than retailers when it comes to the shift to digital channels. And tend to exhibit better unit economics for us as they have overall higher average revenue per customer, higher rates of expansion and better retention than retailers. We believe brands are a strategic customer segment for us, and our objective is to grow and expand our brand customers by investing and offering solutions that address more of their needs. As David mentioned earlier, with the acquisition of BlueBoard, we are now able to provide brands more of the e-commerce intelligence they need to gain a competitive edge online and increase sales. BlueBoard's analytics platform monitors products across thousands of online retailers and marketplaces worldwide in near real time. The platform provides actionable insights, including pricing trends, gaps in product availability and content, customer satisfaction issues, share of search results and areas to improve merchandising. These capabilities enable our customers to understand market trends, protect their reputation and optimize their e-commerce strategies to help drive profitable growth. BlueBoard has already achieved success selling to global brands. In fact, BlueBoard helped Polar, a leading smartwatch brand, drive a meaningful increase in direct sales on Amazon, and helped L'Oreal increase their share of the digital shelf by double digits. By adding this compelling functionality to the suite of products offered by our global sales force, we see a tremendous opportunity to expand relationships with existing brands, customers and attract new brands to our platform. In Q2, we also delivered strong innovation within our platform for brands. We continued to add features that support client success with technology to help improve seller efficiency, reduce cost and drive successful outcomes. We recently released ad performance rules for Amazon advertising to allow sellers that advertise on Amazon to easily evaluate low-performing sponsored campaigns, helping to save time and drive ad spend efficiency. For our Where to Buy solution, we now support add to cart on additional retailers, including Instacart, Dollar General and Target Plus. In terms of fulfillment, we've added more international options with Amazon Global Express supporting international shipping labels for U.S. products and also support for the Amazon shipping program in the U.K. Our focus on brands has allowed us to recently land HUGO BOSS as a new client. And in Q2, we extended our relationship with ASICS, a go-to sports footwear brand for millions of consumers worldwide. If you haven't seen it already, please check out the ASICS case study on our website, which illustrates the power of our platform. Realizing that the direct-to-consumer shopping journey doesn't stop at the company website, ASICS engaged ChannelAdvisor to leverage our expertise in marketplaces and digital marketing. Helping ASICS seamlessly increase the number of marketplaces served was only part of the story. Given the number of sellers competing on these marketplaces, it's essential to take steps to find, attract and engage the target customer. That's where our long history of adding value in digital marketing comes in. By tapping into our multitude of competencies ASICS reports, they were able to increase sales year-over-year by over 70% and push return on ad spend to record levels for them, all while making the overwhelming field manageable. ASICS is a great example of how our initial success with the brand can lead to substantial expansion over time. Our second strategic pillar is to leverage indirect channels to expand our reach and drive incremental revenue streams. I'm happy to report that we made our Starter Edition product generally available in late May to customers of our go-to-market partnership station. With this release, we now have a product that allows us to acquire online multichannel sellers much earlier in their e-commerce journey with a low-touch and self-service customer acquisition and support model. Prospect, marketing and engagement is actively underway in collaboration with ShipStation. While it's early yet, initial customers have been positive about the product and its applicability in helping them manage their smaller multichannel sales operations. Our third strategic pillar is to optimize our core business, which is centered around improving the efficiency of our operations while continuing to invest in enhancing our leadership in e-commerce. During the quarter, our scale was on display as we rose to the occasion of 3 consecutive months of holiday-like volumes without a hitch, all while working from home. This doesn't happen by accident, but as a result of the substantial investment we have made in research and development and operations every year to develop and continuously improve our technology infrastructure to enable it to scale effectively and efficiently to meet the ever-growing needs of our clients. Something else that I'm particularly proud of is that during this period of unprecedented volume, our team continued to move full speed ahead on new features, new channels, UI improvements, process changes, infrastructure upgrades and many other projects we would normally avoid deploying during the busiest weeks of Q4. In fact, since we started working from home, our engineers have deployed dozens of code changes per day on average, and the process has been reengineered to help eliminate impacts on our customers. We added 8 new marketplaces in the quarter, including Afound in Germany and Austria, Atlas for Men in the U.K. and Premium Outlets in the United States. Also, while our drop ship network was setting new records for monthly GMV, we added several new retailers to our network, including staples, Kohls, Nautica and Dollar General. In addition, we remain committed to making our platform easier to use and have deployed significant usability upgrades to 2 of our most critical and widely used features channel mapping and order management, which are designed to help sellers lift products faster with fewer errors and improve the speed of order fulfillment. At the same time, we've continued to work with our customers to develop strategies and a steady flow of content to enable their success in this unprecedented time. From webinars on topics like marketplace expansion in this new era, to blog posts addressing how brands can create meaningful connections with online consumers, to tip sheets covering ways to adapt your online advertising during the COVID-19 crisis, we're going the extra mile to help our customers and prospects navigate this challenging environment. As David mentioned, GMV strength was broad-based with growth on our major trading partners like Amazon, eBay and Shopify, in line with their recently reported results. We noted particular strength on Walmart, as their e-commerce offerings continued to evolve, as well as continued strong growth on our long tail of marketplaces like Target Plus and Zalando. To summarize, this is a very exciting time at ChannelAdvisor. Our business has performed, we have continued to deliver strong technology innovation, and we are actively shaping the strategies our clients execute to help drive positive outcomes for their businesses. I'm proud of how the team has risen to the occasion in response to this unexpected level of activity. Based on the strength of our offering and the positive trends in the market, I continue to be optimistic about the opportunity in front of us. With that, I'll pass it to Rich now to provide a more detailed update on our financial performance. Rich?

[Richard Cornetta:]

Thank you, Beth, and good morning, everyone. The second quarter of 2020 was certainly a historic quarter for our company. The tremendous financial results we achieved surpassed previous records and significantly exceeded the guidance we provided in May, demonstrating the scalability of our business model. We mentioned on our Q1 earnings call that if GMV trends at the start of Q2 were to continue, we could see variable revenue results that compare to our seasonal Q4 performance. With the second quarter now behind us, it's clear that GMV trends and variable revenues far exceeded our expectations. So let me provide a little color on these outstanding results for the second quarter. Please bear in mind, consistent with our historical practices, my comments regarding expenses and net income will be on a non-GAAP basis. Both revenue and adjusted EBITDA were significantly above our floor guidance for the quarter, and along with operating and free cash flow, reached all-time highs during the period. As David mentioned earlier, cash generation in Q2 covered most of our upfront cash outlay for our acquisition of BlueBoard. And this cash generation didn't come at the expense of accounts payable either. We remain current with our vendors, unlike many other businesses who stretched payables to conserve cash, a true testament to our strong balance sheet and operating model. Taking a closer look at these results, total revenue was $37.4 million for the second quarter, up over 17% year-over-year and up 18% on a constant currency basis as well as excluding our China operations, which we discontinued in July 2019. Variable revenue during the quarter was the primary contributor to these strong results, which totaled $11.7 million, representing an increase of 88% from the year ago period. This was driven by sustained and broad-based growth in GMV as e-commerce spending remained elevated throughout the quarter. Fixed subscription revenue was $25.7 million for the second quarter. Coupled with our strong variable revenue results, we are encouraged by the improvement we have seen in net bookings performance during the quarter, particularly in the U.S. as the investments we have made in expanding our sales organization over the past few quarters started to contribute to these results. Looking at revenue by customer type, which we look at on a trailing 12-month basis, brands revenue for the 12 months ended June 30, 2020, increased 19% compared to the year ago period and represented 31% of our total revenue for the period. This is up from 27% from the prior year period. We remain very pleased with this continued shift towards brands. As this pandemic has illustrated, brands are generally more resilient and better positioned than retailers when it comes to the shift to digital channels, whereas retailers are faced with store closures and other structural challenges. Our strategic focus on brands was a driving force behind our acquisition of BlueBoard and the investments we have made in our platform to support our brands customers have been paying off during this crucial time of e-commerce demand. Retailer revenue for the 12 months ended June 30, 2020, represented 63% of our total revenue for the period compared to 67% for the prior year period. From a geographic perspective, revenue from the U.S. increased approximately 20% in the quarter, representing the second consecutive quarter of revenue growth in the U.S. after a few quarters of modest declines. This growth is primarily a result of the strong variable revenue performance. But as I mentioned above, the investments we've made in the U.S. sales organization over the last few quarters have started to contribute to growth as well. Many of the new sales reps that we've hired in the U.S. are still progressing through training and ramp, and we anticipate their productivity to start contributing to our results more meaningfully in the coming quarters. International revenue increased 10%, excluding China results, also driven by strong variable revenue results. Adjusted EBITDA almost quadrupled to $11.6 million for the quarter compared to $3 million in the prior year period, generating an adjusted EBITDA margin of nearly 31%. In addition to the strong revenue performance during the quarter, these results include improvements across all reported expense line items. It is important to note that our adjusted EBITDA results for the second quarter were strengthened by approximately $1.3 million of expense savings related to the COVID-19 pandemic, with the biggest drivers being the elimination of business travel and a reduction in trade show and facilities costs. So some of our improved profitability is attributable to factors we would not expect to continue under a more normal operating environment. Further, adjusted EBITDA for the trailing 12-month period ended June 30, 2020, totaled $32.6 million, highlighting our continued commitment and ability to manage expenses and drive profitable growth. In addition, non-GAAP net income experienced significant improvement coming in at $9.8 million for the quarter compared to $1.5 million in the prior year period, resulting in non-GAAP earnings of $0.33 per diluted share compared to $0.05 per diluted share in Q2 '19. This strong performance -- this strong improvement in adjusted EBITDA and non-GAAP net income was a direct result of our revenue growth, ongoing cost discipline and our reorganization in July 2019, which was aimed at reallocating capital to better align investments in sales, services and support to enable a return to top line growth in the U.S. and further strengthen our international operations. Turning to the balance sheet. Consistent with our strong P&L performance, cash and cash equivalents were $63.9 million, up from $56.4 million in Q1, representing record cash generation of $7.5 million during the quarter. Free cash flow was $6.7 million for the quarter, again, marking substantial improvement of approximately $4.5 million from the prior year period. Despite the current economic environment, I'm pleased to report that cash collections remained strong throughout the second quarter. Lastly, we announced this morning that we have entered into a 3-year, $25 million revolving credit facility, which included a $10 million accordion feature. Other material terms and conditions have been summarized in our Form 10-Q filed this morning. As David said, while we have no current plans to draw on this facility, it provides us with additional liquidity and flexibility at an attractive cost. And so we believe it makes sense to have added this to our financial toolbox. Now let's discuss our financial outlook. Similar to last quarter, there remains a significant amount of uncertainty caused by the COVID-19 pandemic, which makes forecasting the remainder of the year very difficult, particularly with regards to GMV and variable revenue. We simply cannot predict how long or to what extent GMV levels may remain elevated and benefit our revenues. As for the third quarter 2020, we have some visibility as to our potential financial outlook, but again, it is more limited than usual. July GMV and variable revenues remained elevated over pre-COVID results, although slightly lower than the levels we saw in Q2. Whether these trends remain stable, increase or decrease as we go through August and September is difficult to say, considering the myriad of factors affecting the economy and consumer shopping habits. As such, we are once again issuing a guidance floor for revenue and adjusted EBITDA in Q3 of $34 million and $6.5 million, respectively. Although we anticipate GMV levels and variable revenue performance to decelerate relative to what we saw in Q2, if July trends were to continue throughout Q3, we could see variable revenue results comparable to or in excess of our most recent Q4 performance. Despite more limited revenue visibility in the short term, we believe the strength of our balance sheet and profitability of our business model provide us with the means to maintain our strategic focus even during a global pandemic, as we have shown more recently with the acquisition of BlueBoard. And finally, the last few months have really been exciting here at ChannelAdvisor, with record-setting results, our acquisition of BlueBoard, the general release of Starter Edition and the commitment we've made to our diversity, equity and inclusion initiative we have much to recognize and be proud of. On behalf of our senior leadership team, I want to extend our appreciation to our employees for their resilience and dedication during these unprecedented times, our customers for having the confidence in our platform to support their e-commerce objectives when there has never been a time of more dependence on e-commerce. And of course, our shareholders, for your support. We are incredibly excited about the future of e-commerce and how our leading platform has been designed to support increased e-commerce demands for the months and years to come. I'll now pass the call back to David for some final remarks.

[David Spitz:]

Thanks, Rich. I'm proud of our team for handling the last few months with incredible professionalism and such a strong focus on our customers. We know we're fortunate to be in the right place at the right time during this pandemic as it relates to e-commerce. And though near-term visibility is limited, our mission to connect and optimize the world's commerce is intact and as relevant as ever. And with that, operator, we'd now like to open the call to questions.

[Operator:]

[Operator Instructions]. Our first question will come from the line of Colin Sebastian from Baird.

[Colin Sebastian:]

David or Beth, a question on the sales pipeline and backlog. I guess I'm wondering how I should think about this impacting the trend in subscription revenues as we look ahead and beyond the clear boost, obviously, on the variable revenue contribution side. And Rich, based on the commentary on July strength in GMV with some moderation, I'm wondering what you would have to see in August and September to hit the Q3 floor with respect to variable revenues?

[David Spitz:]

Colin, this is David. As it relates to pipeline and backlog, I would expect it to start to benefit more fixed and recurring revenues in the quarters to come. As you know, we had a bit of a disruption at the end of Q1 in the last 2 weeks, just kind of COVID-related as deals slipped and got pushed. So a little bit of a lag effect from that, I would say, is something that we're seeing now. But the other thing that's a factor that I'm really pleased with is the hiring that we've made over the last 9 months and even during the quarter. So the sales capacity and the quota coverage that we have now is frankly better than we've had in years and we're starting to see some of those new reps contribute, and I would expect more of them to contribute as the months roll on. So I'd expect to see some improvement in the coming quarters on the fixed side.

[Richard Cornetta:]

Yes. And with regards to your question as far as expectations for Q3, we did mention that July results came in quite strong, not to the level that they were in Q2, but quite strong. And in order for us to achieve what we're saying is our floor of $34 million, we would be somewhere in the midpoint between where July came in and historical pre-COVID levels.

[Colin Sebastian:]

Okay. That's helpful. And maybe, David, as a follow up, we're obviously seeing large platforms accelerate their e-commerce initiatives obviously, Google Shopping, Facebook, Instagram Shops, Pinterest, et cetera, recent announcements there. How does that impact your business from a business development standpoint as well as from a back-end technology standpoint to make sure that you have the right tools for integration?

[David Spitz:]

Yes. Thanks, Colin. I think it's really good for us, right? So we were the initial launch partner, for example, for Walmart when they launched their marketplace with Google Shopping. We've been partners with Facebook and Instagram on checkout and marketplace initiatives. So with the larger platform seeing ChannelAdvisor is a really high-quality network of suppliers who are essentially ready and able to attach to their platforms and bring a good consumer experience, which is really important to them, for obvious reasons. So we're typically one of the first, if not the first call that these platforms make when they're ready to launch something, Target Plus being another example that launched with us. And so I see that as a meaningful opportunity for us. And from a technical perspective, I mean, this is what we're built to do, right, is to -- I think Beth indicated 8 new marketplaces in Q2. So our system is built to expand and to attach into multiple systems. And that's what we do. So I don't see any reason why that wouldn't just continue to be the case, the normal course for us.

[Operator:]

And our next question will come from the line of Matt Pfau from William Blair.

[Matthew Pfau:]

Maybe just to dig into the strong bookings result that you saw in the quarter. How is that trending in terms of split between brands and retailers? Is it going in the anticipated direction much more towards brands?

[David Spitz:]

Matt, this is David. Yes, absolutely. We saw a really nice quarter with brands. The proportion in the mix of brands and retailers is significantly higher for brands than it is in our overall revenue mix. So to me, that indicates that we would expect to make continued progression as that mix shift goes towards brands. One of the nice things with brands, we've talked about this before, is not only do they have a lot of opportunity to expand beyond our initial engagement, which is something we saw a lot of in the second quarter expansion bookings, as I mentioned in the call. But increasingly, this current situation, the pandemic is accelerating a lot of brands' e-commerce initiatives, right? So if you're a brand that enjoys historically 90% of your revenue from the retail channel, well, all those retail store closures really caused you to think about how you had to get better control over the digital channels. So both on the new customer side and on expansions, we've seen strong performance with brands.

[Matthew Pfau:]

Got it. And then you mentioned that some of your competitors have been forced to reduce staff, which perhaps that implies that you've been gaining share relative to them. So I guess, number one is, do you guys feel that you've been gaining share? And then -- and you also mentioned in the context that you've been making investments, where are the sort of key areas where you've been adding resources?

[David Spitz:]

Yes. So some of those competitors are private, and so we don't necessarily have visibility into their performance. But I've seen at least a couple of cases where there have been substantial reductions in go to market, in sales, et cetera. And the impact of that on their operations may not be felt for a quarter or 2. But fundamentally, I think that, especially in e-commerce space, will prove to be a mistake. So as I said in our call, we've leaned into it. We've been growing our R&D headcount for several years now and a substantial proportion of BlueBoard's team was actually software engineers. So that added a nice number of people to our engineering organization. But as I said in the call, we've also been investing in sales and services in the anticipation of continued strong demand for our products.

[Operator:]

Our next question will come the line of Thomas Forte from D.A. Davidson.

[Thomas Forte:]

Great. So first off, David, Beth, Rich and Raiford, exceptional quarter and stay well. So 1 question and 1 follow-up for David. So on its earnings call, eBay, their management suggested e-commerce trends were highly correlated with mobility. So in countries that seem to be doing well, managing COVID-19, such as Germany and Italy, there's improved consumer mobility and a moderation in e-commerce trends. Now by way of comparison, in geographies where it's still a big challenge, such as the U.S., e-commerce trends have held. Additionally, eBay's management said e-commerce trends are more correlated to mobility than government stimulus. So David, I'd appreciate your thoughts on the near-term sustainability of elevated e-commerce sales and the influence of mobility versus stimulus?

[David Spitz:]

Tom, thanks for the remarks. It's a really good question. And I think for us, at least, it's maybe a little bit too early to say. I mean, it stands to reason that as various countries or states or geographies open back up, there's some level of return to normalcy as consumers can go to stores that were shut during the pandemic and maybe reopening now. So I think there's some logic to that. However, I would say that even in states, I've been looking not so much at the data on a European basis, of course, as I said actually I've been looking at U.S. data state-by-state because there's quite a spectrum, as you know, as to how different states are handling things. And I actually haven't seen a particularly meaningful correlation between states that have reopened versus -- more quickly versus those that haven't. And so I think part of what we're seeing is that even if stores are reopened, there's a lot of hesitancy for consumers to rush back into a retail environment just for health and safety reasons. And on top of that, the retail experience isn't frankly quite as pleasant as it used to be, right? I mean, now you've got to go into a store, you're wearing a mask, you're potentially limited to the number of people in the stores. So I would expect that some of those pressures on off-line continue. And I think a lot of people have experienced online maybe for the first time or maybe they've been buying essentials now for the first time or groceries online for the first time. And I think a lot of people are realizing that, that's pretty convenient. And it's a habit that's going to stick to some level. So -- and as it relates to stimulus, I mean, we saw really, really strong volumes around mid-April, which we refer to as stimulus day when the initial batch of $1,200 checks hit people's accounts. So there was clearly at least a short-term effect from that. Obviously, no new stimulus program has been passed in the U.S., and so we'll be watching with interest to see what and if something passes, and what the nature of it is and what effect it has on consumer spending. So it's part of the reason it's a little bit hard to forecast right now what effect that will have on consumers.

[Thomas Forte:]

Good. All right. And then for my follow-up question, I want to know the implications to ChannelAdvisor-specific and industry in general on Amazon Prime Day being held in the fourth quarter this year instead of a normal year, where it's in June or July?

[David Spitz:]

Yes, that's a really interesting question. My initial reaction to the postpone of Prime Day to October was, frankly, why would you want to move such a heavy volume day so close to Q4? I think what I've -- and this is speculation on my part, I think what I've concluded is that Amazon's fulfillment capacity, and they've done an amazing job rebounding on the fulfillment side from some of the challenges they faced in March and April, but I suspect Amazon sees Q4 as potentially a really, really strong volume quarter and maybe what Amazon is trying to do is to pull forward some of that demand from late November and December into October to try to smooth out the volumes a little bit and keep some of that pressure from building too much on their fulfillment operations. That's -- again, that's pure speculation on my part. If that's true, then to me, that's a bullish thing, all right? It indicates that Amazon may be expecting a really, really strong Q4, but we'll obviously have to see.

[Operator:]

And our next question will come from the line of Ryan MacDonald from Needham.

[Ryan MacDonald:]

Congrats on an excellent quarter. I guess, David, first one for you. Obviously, brands has been a big focus in terms of sort of shift in strategy, but I'd be really curious to hear sort of what the conversations are like that you're having with retailer customers, given that COVID has sort of exposed the traditional model, are you seeing sort of a bit of urgency from those customers to shift and sort of focus more on sort of a digital strategy?

[David Spitz:]

Yes. I think that's true both of brands and retailers. So for different reasons, brands, obviously, are following the consumer and the shifting patterns of how to access the consumer. So that's really what's driving brands and the urgency is driven by the stress that they're seeing on their retail partners. But even on the retail side, it's the same dynamic, right? I mean consumers are changing how they buy products. E-commerce has obviously grown substantially as a percentage of overall spending -- consumer spending. So retailers also have to follow that. And I would say, in general, probably not surprisingly, retailers are several years ahead of brands in terms of maturing their digital offerings. I mean, it's not uncommon to come across a brand who hasn't really even started that journey or is very, very early in that journey, right? So I would say as a as a segment, brands are some number of years behind retailers. But yes, retailers, the 1 area of their businesses that's actually been doing well is the digital channel. So if you're struggling -- if you're a retailer and you're struggling with your physical footprint or -- and store closures and things like that, even some of the more stressed retailers we've seen double down on their emphasis on digital because that's where the action is. So yes, so I'd say it's an urgency across both -- the reason we think brands are important, though, is if we sort of play that out to its logical conclusion. We think some retailers will make the turn and really develop a durable long-term value proposition as a middleman for the consumer. We also think -- and we've seen this, right, already this year, a number of bankruptcies and store closures. So we think that for every retailer that successfully makes that turn, there's probably a couple that don't. And so if you're a brand, ultimately, what's left standing is the brand selling through a few digital channels?

[Ryan MacDonald:]

Excellent. And then I guess, as we look at and you parse through some of the July data and the strength you've seen there, is there anything within there that suggests that you're seeing interestingly in regards to back-to-school spending trends? Do you see some more of those dollars shifting online for this fall versus maybe what traditionally was a bit more of an in-store experience?

[David Spitz:]

That's an interesting question. And I don't know that we have enough data yet in July. One of the interesting dynamics we saw in July was actually a little bit of a slower start to the month in terms of volumes, and some of that's just the nature of the July 4 holiday. But then as July progressed, we saw volumes steadily increase and I haven't seen -- I don't know if we've done this yet, I haven't seen data that correlates it to anything related to back-to-school. I'm very curious to see if we -- we published, I think, 7 or 8 weeks of category trend data in March and April around things like people were buying desks to work from home or laptops and headsets, and I wonder if we'll see a similar surge in sort of school from home purchases as people realize that the likelihood of their kids really being back at school or being back at school full-time is diminishing, I think, with each passing day, but haven't done the analysis yet.

[Operator:]

[Operator Instructions]. Our next question will come from the line of Zach Cummins from B. Riley FBR.

[Zachary Cummins:]

Congrats on the strong quarter. David, I guess, just turning back to the bookings portion. I mean, can you give us a sense of the mix coming from existing customers and expansions versus what you're seeing with new customers being added?

[David Spitz:]

Yes. Zach, appreciate the comments. Yes, I would say, pretty balanced and probably a little bit heavier on the expansion side than a typical quarter. I think -- not so much that I would call it pronounced or anything like that, but just an incremental uptick in the proportion that's expansion versus new customer. And I think some of that is when we saw this kind of urgency in this pull forward of digital strategies, existing brand customers, those are sort of the easiest to convert to bookings quickly, right, because they already work with us. We've gone through procurement. We've gone through the security audits. So it's literally a matter of adding an SOW or something if they're adding the capability. So that may be sort of a temporary phenomenon related to just the nature of the environment in Q2. But I was really pleased with the mix of brands versus retailers. And again, I also think that longer term, as a larger and larger proportion of our customer base's brands, it is possible that the -- that there's a certain amount of more elevated expansion bookings that we see just because by nature, brands have larger opportunities for us to expand with them, just given the breadth of our product portfolio. So it's possible over time that expansion bookings are a more substantial part of our bookings.

[Zachary Cummins:]

Understood. And it sounds like there really -- despite some of the concerns there near the end of March and early April around potential customer attrition, it sounds like your retention held up pretty well here in Q2. I mean can you give us a sense of how you're thinking about any sort of risks to customer churn as we move through the next couple of quarters?

[David Spitz:]

Yes. And I'll say a sentence or 2 and, Beth, maybe you want to chime in. I think at the beginning of Q2, we didn't really know what to expect. I think we can all agree that this has been sort of a hard-to-predict pandemic. For example, if somebody had told you that the housing market would be really strong during a pandemic, you might not have believed them. So there have been aspects of this that have been kind of hard to predict. And we sort of went into Q2, assuming that the store closures and bankruptcies on the retail side would start to show up in our numbers, and we didn't see that. And I think part of it, as I alluded to earlier on one of the earlier questions, that even if a retailer is in distress at some level, the digital channel is the one that's performing for them. And so that's not an area where they necessarily want to cut back. So as we look forward, I think that on the retail side, the stress that retailers have been sort of seeing for some time now, all of the trends that were there are still there and the pandemic has probably accelerated some of those trends. So we've been pleased so far with what we've seen. But I do think retail remains under stress. And we may see some churn from that segment. That's part of what we plan for. So I don't know if, Beth, you have anything to add.

[Elizabeth Segovia:]

I think what I would add is, we talked a little bit about how we leaned in to work with our clients during the second quarter. And we provided about $1 million of relief, and most of that was in the form of delaying payments, so working on payment terms with customers as well as adjusting their tiers and contract terms to a new level, right, whether that be lower or higher based on how they -- how their businesses responded to the pandemic. And I think by working with our customers, we really helped them stay in the game and effectively weather the first few months of the storm. So it actually resulted in very few terminations directly related to the pandemic. So I think in general, that was really good. It was our strategy, which was to try to get them through and work with them because we knew e-comm was going to be the lifeblood of what was going to help their businesses remain or become more durable. So I think we were successful with that. Going forward, it's sort of anyone's guess as to the -- how long this is going to happen and what that's going to do to our retail customers in the future. So I think we saw less than we expected, which is great, and that the strategy we deployed worked. And as we look forward, I think we just have to see how long this is going to last.

[Operator:]

And I'm showing no further questions at this time. I'd like to turn it back over to Raiford for any closing remarks.

[Raiford Garrabrant:]

Thank you, everyone, for joining us today. We look forward to speaking with you again soon.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.