ChannelAdvisor Corporation
Q2 2018 Earnings Call Transcript

Published: 10 Aug 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 ChannelAdvisor 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 be given at that time. [Operator Instructions] It is now my pleasure to introduce Director of Investor Relations, Ms. Traci Mangini. Please go ahead.

[Traci Mangini:]

Thank you, Andrew. Good afternoon, and welcome to ChannelAdvisor's conference call for the second quarter of 2018. My name is Traci Mangini, Director of Investor Relations. And with me on the call today are David Spitz, ChannelAdvisor's Chief Executive Officer; and Mark Cook, ChannelAdvisor's Chief Financial Officer. This afternoon, we issued a press release with details on our second quarter performance as well as our outlook for the third quarter and full year 2018. 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 expectation. These risks are summarized in the press release that are issued – that was 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 or Form 10-Q as well as our other filings, which are available on the SEC website at www.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 expense and a one-time charge related to sales tax obligations. Our press release that we issued today includes GAAP to non-GAAP reconciliation of gross profit, gross margin, operating expenses, operating loss, operating margin, adjusted EBITDA, non-GAAP loss and free cash flow. We also provide a GAAP to non-GAAP reconciliation schedule posted on the Investor Relations section of our website at ir.channeladvisor.com. Finally, at times in our prepared comments or responses to your 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:]

Thanks, Traci, and good afternoon, everyone. I was pleased with our continued momentum and execution through the second quarter as revenue handily outpaced our guidance and continued improvements in sales efficiency allowed us to deliver margin improvement faster than anticipated. Strong growth in GMV and continued expansion of strategic partnership revenue contributed to solid variable revenue growth in the quarter against a tougher year-ago comp. In addition, our brand-focused Where to Buy product delivered strong growth, roughly doubling compared to the second quarter of last year, and digital marketing continued to rebound, posting a second consecutive quarter of growth following eight quarters of decline. We believe these results demonstrate good execution and the value of our platform in helping our customers stay ahead of the curve, reach more customers, grow sales and improve efficiency. Sales efficiency has improved since the third quarter of 2017 with improvements in bookings per sales rep and an increasing – and an increase in the proportion of our sales teams achieving or exceeding their goal. We're excited to have been selected by blue chip customers like Lenovo, Keurig and Mondelez International and to have expanded relationships with iconic companies like Xerox. We also saw growing revenue contribution from strategic partners as we focus on expanding our business development and indirect channel efforts. Taken together, these factors drove improvements in overall sales efficiency and contributed to better-than-expected profitability in the second quarter, reflecting solid execution against our strategy of continuing to invest in growth while also delivering margin improvement. Speaking of strategic partnerships, we've had a lot going on and this was one of the areas that I said was a focus for me earlier this year. Last week, we announced the expansion of our strategic partnership with Google in support of Google Shopping Actions. ChannelAdvisor was the first integration partner to launch support for Shopping Actions, which we announced at our Catalyst show in April, highlighting the work we do with partners to stay ahead of the curve on behalf of our customers. We have long partnered with Google as their e-commerce platform has evolved from AdWords to product listing ads and now toward Shopping Actions, which we believe has the potential to be highly disruptive to e-commerce. Consumers are mobile-first now and by integrating Google's best-in-class advertising capabilities with a frictionless payment flow, we believe Google is now in a position to offer retailers a very compelling offering. Based on publicly available data, we believe we are powering a significant proportion of the retailers currently leveraging Google Shopping Actions and we have a strong pipeline of customers who are in the process of launching it hopefully prior to the fourth quarter in most cases. I'd also like to highlight the success we've seen with eBay since announcing our strategic partnership last year. In conjunction with eBay, we work hard to drive customer adoption of eBay as a selling channel and to drive adoption of key eBay capabilities like their product catalogs, guaranteed delivery and sponsored listings across our customer base. There's also been a steady acceleration of eBay GMV growth since the inception of the partnership. And in Q2, we saw eBay GMV year-on-year growth of over 13%, the fastest growth rate we've seen in four years. We believe this highlights not only the competitive advantage our customer gained from our platform, but also how working more closely with our strategic partners is a win-win-win for our mutual customers, our partners and for us. Of course, Amazon continued to perform very well as a channel with strong second quarter GMV growth consistent with what we saw in the first quarter. We were pleased to be invited to join Amazon's developer counsel, giving us the opportunity to help shape Amazon's road map and strengthen our long-standing relationship with our largest selling partner. Prime Day, which took place after the end of the second quarter and so it was not incorporated in our second quarter results, highlighted the strong improvements we've made in advancing Amazon capabilities and delivered the strongest sales velocity, measured as GMV per hour, during any Prime Day we've seen so far with sales velocity nearly triple what we had in 2017. We believe this is a positive indicator for the upcoming fourth quarter. Walmart GMV remained stable in the second quarter following a contraction in the beginning of fourth quarter, and I'm cautiously optimistic we'll see further improvement in the back half of the year. For instance, a number of our customers now enjoy fast and free shipping badges on Walmart, something that was previously reserved for first-party products only and we believe this may help boost traffic to those sellers' products. And last but not least, the long tail of other marketplaces we support, well over 100, continued to drive scale, differentiation and growth for us as our number three marketplace channel when taken in aggregate. We also continued to expand our strategic partnerships in the logistics space. In the second quarter, for example, we went live with a global carrier who replaced dozens of in-house marketplace integrations with a single global ChannelAdvisor integration, making it easier and more efficient for its customers to leverage e-commerce to grow. We'll be sharing in the upside of this program with a volume-based revenue structure. Now, it's difficult to project what the order volume will be as this program recently launched, but it has the potential to be a significant revenue stream for us over time. All in all, our partnership activity has really heated up and I'm bullish that these strategic partnerships and indirect channels will be an area of continued investment for us and a primary growth factor going forward. Also contributing to our revenue performance in the second quarter was digital marketing, which delivered a second consecutive quarter of year-on-year growth. As you may recall, prior to the first quarter 2018, we had not experienced year-on-year growth in digital marketing since the fourth quarter of 2015. Now, some of this is driven by Amazon Marketing Services or AMS and some of this is due to longer-term improvements in bookings and retention against what is now a smaller revenue base. Digital marketing is a really competitive business and the results can be lumpy due to customer concentration so I'm not ready to declare victory, but I am pleased to see digital marketing contributed to growth for the first time in a long while and I remain bullish about the prospects for AMS. And finally, our Where to Buy product continued to experience strong year-on-year growth with revenue up nearly 100% year-on-year in the second quarter. This product has not only become an increasingly meaningful contributor to revenue, but also provides a strategic benefit in widening and deepening our relationships with brands as they seek to navigate the shifts to digital and e-commerce. Now, one area that was mildly disappointing was customer count. We finished the quarter with a net loss of 26 customers, most of which was driven by smaller customers. We did see a corresponding improvement in average revenue per customer, but as I said before, sustained growth eventually depends on an expanding customer base regardless of size. So in this count, I feel like we took a bit of a step back in the second quarter and Mark will provide a little more color on this in his remarks. Overall, however, performance across the business, in particular our international growth and our strategic partnerships, more than offset this decline in customer count. So we remain confident in our outlook for the rest of the year as indicated by our improved full year guidance on both revenue and adjusted EBITDA. With a successful first half behind us, we're optimistic about the second half of 2018, especially as we anticipate the investments we've made in partnerships and improved revenue retention begin to pay off. For example, in the first half of 2018, nominal dollar churn has actually decreased in the U.S. compared to the first half of 2017 and we are anticipating additional improvement in global revenue retention in third quarter as many of the people and the changes that we've put in place this year take hold. Looking further out to 2019, we plan to continue our investments in growth, especially in partnerships and indirect sales channels as well as R&D and services, while delivering exceptional profitability based on improved leverage in our model. And with that, I'll turn the call over to Mark for our financial update. Mark?

[Mark Cook:]

Thank you, David. Before I jump into the numbers, I just want to say that we were pleased with our Q2 2018 financial results. Both our Q2 2018 revenues and adjusted EBITDA came in above the guidance range we provided back in May. Now, let's cover our second quarter financial performance in more detail, which after will follow with our guidance for the third quarter and full year 2018. Revenue in the second quarter was $32.7 million, an increase of 9% from the second quarter 2017 and as mentioned above the top end of our guidance. Our fixed subscription revenue of $24.8 million increased 10% from the year-ago period and represents 76% of the total revenue. This also represents a nice step up from the Q1 2018 for our fixed subscription revenue. The increase in fixed subscription revenue was driven by our combined sales performance in Q1 2018, strength in our Where to Buy solution as David suggested earlier as well as contribution from positive year-over-year growth in our digital marketing solution. Variable revenue was solid in the second quarter at $7.9 million, an increase of 6% from the year-ago period. This year-over-year growth was somewhat muted, which warrants a little more background. If you recall, variable revenue in Q2 2017 included about $600,000 in non-recurring partner revenue. Variable revenue in Q2 2018 also included nonrecurring items totaling approximately $400,000 compared to $200,000 in partner revenue and another $200,000 which was accelerated into Q2 2018 due to ASC 606 revenue recognition requirements. If these non-recurring items were excluded from both Q2 2018 and Q2 2017 results, variable revenue would have increased about 10% year-over-year on an apples-to-apples basis. Our overall strength in variable revenue was driven by a combination of our new partner agreements, which continued to gain traction, as well as the strength of GMV that David mentioned earlier. From a geographic perspective, revenue from outside the United States was approximately $7.6 million in the second quarter, an increase of 20% from the year-ago period. This represented 23% of our total revenue in the second quarter, up 21% from the year-ago period as a result of strong performance in international operations. Next, I'd like to discuss our customer count. I want to remind everyone we expect changes in customer count to continue to be lumpy from quarter-to-quarter. Our customer count at the end of the second quarter was 2,820, a decline of 26 from the second quarter and a decline of 77 from the year-ago period. The overall decline is primarily a result of customers with less than $15,000 in committed annual contract value, which decreased by net 24 during the second quarter. That category now totals 987 customers, which is also net 45 fewer than a year ago. I want to impress that over the past 12 months, our customers' total committed annual contract value increased by $5.4 million or 6% to $101.9 million as of the end of the second quarter. Further, customers with committed annual contract value over $100,000 increased by eight and contributed to over $3.3 million to the total increased value during the same period. While this category decreased by net six customers during the second quarter, this was not driven by churn. This was primarily due to customer migration to a lower category as a result of committed annual contract values having dropped marginally below the $100,000 level. Migrations occur as a result of contract transient renewal and, in some cases, customers change ownership. As a reminder, committed annual contract value is a fixed amount of annual revenue for which a customer has a minimum contractual commitment and does not include any potential variable revenue. An additional customer metric which continued to grow is trailing 12-month average revenue per customer. On a trailing 12-month basis, this metric continued its upward trend, reaching $45,029 at the end of the second quarter, an increase of 10% from the year-ago period. Now providing some additional breakdown on our revenue. Our Marketplaces platform solution recorded revenue of $23.8 million for the quarter, an increase of 4% compared to the year-ago period and represented 73% of our total second quarter revenue. This follows somewhat of a difficult comp as a result of the non-recurring revenue discussed earlier in Q2 2017. We believe our newer Marketplace-based partnerships such as Google Shopping Actions and similar opportunities could ultimately enable a steady growth for our Marketplace revenue. Our digital marketing solutions revenue was $4.5 million for the second quarter, an increase of 4% compared to the year-ago period. It also represents about 14% of total revenue from the second quarter of the period. This marks a consecutive year-over-year increase in quarterly digital marketing revenue and only the second quarter year-over-year increase since the fourth quarter of 2015. We remain optimistic regarding the potential of Amazon Marketing Services solution, which also contributed to our digital marketing business. Other revenue, which includes both our Where to Buy solution for brands as well as strategic partner revenue resulting from our business development program, was $4.3 million in the second quarter compared to $3.7 million in the year-ago period, representing an increase of 60% year-over-year. Other revenue also was about 30% of total revenue for Q2 2018. Where to Buy's growth of nearly 100% year-over-year, it contributed to the majority of the growth of the revenue, not only has Where to Buy been our fastest-growing solution, but also our stickiest, helping us to build a stronger customer base of brands with cross-selling opportunities. We are also pleased with the revenue growth from the business development efforts and their contribution to other revenue. Moving from revenue to expenses. As in the past, my comments regarding expenses will be on a non-GAAP basis, and all comparisons are on a year-over-year basis unless otherwise specified. Gross profit in the second quarter was $25.8 million, an increase of nearly 12% from the year-ago period and represented a gross margin of 78.9%, an increase of nearly 200 basis points from the year-ago period. This was primarily a result of stronger revenue discussed earlier combined with unchanged cost revenue compared to the year-ago period. Operating expenses of $26.2 million in the second quarter increased slightly less than 11% from the year-ago period. Sales and marketing expenses increased about 10% from the same period last year. The increase in sales and marketing expense is primarily due to our 2018 Catalyst Customer Conference in the U.S., which was held during the second quarter. If you recall in 2017, the conference took place in the first quarter. As such, U.S. Catalyst-related expenses, which have typically been about $1.5 million, negatively impacted our second quarter 2018 operating expenses when compared to the year-ago. Research and development expense increased about 16% from the same period last year as we continued to invest in our product and development. Operating income was a loss of $418,000 in the second quarter compared to a loss of about $600,000 in the year-ago period as higher revenue more than offset the higher operating expenses discussed earlier, which also represented improved margin compared to the year-ago period. Adjusted EBITDA was a positive $1.1 million for the second quarter, significantly above the top end of our second quarter guidance. While adjusted EBITDA performance was flat on a year-over-year basis, this was despite incurring approximately $1.5 million in expenses for 2018 Catalyst in the second quarter of 2018 as discussed earlier. Non-GAAP net loss was $448,000 in the second quarter compared to a net loss of $617,000 in the second quarter of 2017. Turning to the balance sheet. We finished the second quarter with cash and cash equivalents of $50.9 million, a decrease of $2.5 million since the beginning of the year and $3.8 million during the quarter. This decrease in the quarter was largely driven by a $1.0 million payment related to the settlement of our sales tax audit, $1.5 million in repayment of capital leases, $1.6 million higher withholdings related to the settlement of restricted stock units and a little less than $500,000 for the purchase of fixed assets. Now, let's turn to guidance. As discussed previously, our guidance reflects our goal to drive revenue growth with continued investments in key growth initiatives while also delivering improving profitability in the future as we expect to benefit from increased revenue, sales and marketing expenses resulting from improving sales productivity as well as benefits from the scale through G&A. We continue to be optimistic about our financial prospects for the remainder of the year, but note that our second quarter upside was driven primarily by strong variable revenue, part of which was non-recurring as well as by an acceleration of revenue previously expected in the second half of the year into Q2 2018 due to ASC 606 revenue recognition requirements. Providing some additional context, our second and third quarter revenue has historically been similar in total amount. Q3 total revenue typically have had higher fixed subscription revenue accompanied by lower variable revenue when compared to Q2. We have given thoughtful consideration to our historical trends the fact that variable revenue remains difficult to predict and the $400,000 of non-recurring revenue in Q2 that we mentioned earlier. As a result, for the third quarter of 2018, we anticipate revenue to be in the range of $31.4 million to $31.8 million, representing a growth of 5% to 6% from the year-ago period. And we expect adjusted EBITDA to be in the range of $500,000 to $900,000. For the full year 2018, we are increasing our revenue expectations to reflect the variable revenue upside in the second quarter and the acceleration of certain variable revenue discussed earlier while remaining mindful of the risk in forecasting variable revenue, resulting in anticipated revenue to be in the range of $130.5 million to $131.5 million, an increase in the midpoint by about $500,000 compared to prior full year guidance. And we're also raising the bottom of adjusted EBITDA guidance to a new range of $7.8 million to $8.8 million, a new midpoint of about $8.3 million. This new guidance represents an adjusted EBITDA margin of 6.3% at the midpoint of our guidance compared to 3.4% for 2017. In summary, we are pleased with our progress so far for 2018 and remain committed to delivering a healthy combination of revenue growth and margin expansion. With continued investments in R&D and services and solid traction in our partnership and our indirect sales effort, we are optimistic about the remainder of 2018 and beyond. With that, operator, I'd like to now open the call to questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of Monika Garg with KeyBanc Capital Markets. Your line is now open.

[Jason Celino:]

Hi, guys. This is Jason Celino on for Monika. Thanks a lot for taking our questions. My first question has to do with guidance. So for the first half, growth is about 10% and then if we kind of take a look at guidance, the second half growth kind of implies 5% growth. Why so much deceleration for the year? Can you provide some more details on that?

[Mark Cook:]

Thank you for the question. If you recall, we've been very thoughtful about our variable revenue. We've had pretty strong variable revenue the first half of the year and we have some things that were non-recurring items in the first half which we don't expect in the second half. So we're looking ahead and thinking very carefully about that component of our revenue. And in addition, as we mentioned on the call, we had very strong fixed revenue in Q2. And typically, while we might see an increase in that revenue historically in Q3 – from Q2 to Q3, we don't believe that's going to be the case because of the strength that we had in Q2 this year. As you might expect, we typically have had, as I mentioned, a decline in variable revenue from Q2 to Q3. So we're factoring that in as well. But just to be clear, we did raise the full year midpoint of revenue guidance compared to what we gave guidance last quarter and the same goes through for adjusted EBITDA.

[Jason Celino:]

Okay. Yes. I'm kind of going to EBITDA a little bit. It was a very nice feat, but it doesn't look like it's – much of it's pointing through to the guidance. Can you kind of go into those factors?

[Mark Cook:]

Yes, absolutely. We – it kind of goes in two parts. One, we have the revenue that we had was non-recurring in the second quarter. So as we mentioned, we won't expect that recurring revenue in the future, so that kind of comes off of your future expected EBITDA. Also, we had some – we're going to have expenses that will start going up in Q3 and Q4 as it relates to some hiring that did not occur in the earlier quarters of this year. So all in all, we expect that not to completely carry through in the second half of the year.

[Jason Celino:]

Great. And kind of switching gears a little bit. There's been a lot of news around trade tariffs with China and kind of news around some of the e-packets for the shipping. I mean, does that affect any of your sellers? I know China is kind of a big growth opportunity for ChannelAdvisor.

[David Spitz:]

Jason, this is Dave. It has the potential to. I think it's too early to tell at this point if some of the saber rattling in tariffs that have been implemented already are going to flow through results. China is still a relatively small part of our overall business. So at this point, I would say it's too early to tell. Obviously, it's something we're keeping an eye on.

[Jason Celino:]

Okay. And kind of a similar effect with the Supreme Court ruling on kind of the collection of sales taxes by some of the sellers. I know it's still really early, but can you kind of provide us with any thoughts you might have?

[David Spitz:]

Yes. I think it's a fair question. My view is you might see some near-term friction as people evaluate different buying alternatives now that sales tax may not be collected in certain areas, but it's worth reminding that a lot of e-commerce retailers have been collecting sales tax for a long time in a lot of jurisdictions, including Amazon on first-party sales. I think they collected in something like 45 states. So for a lot of commerce, I don't think it's – it's kind of a non-issue. I also think that e-commerce brings so much convenience to the consumer that I think it's – the total value proposition of e-commerce is far more than just a sales tax question. So and we've seen in the past, for example, when Amazon started collecting in certain states along the way, we actually saw a pull-forward of some revenue as people made purchases before the event and then it dipped afterwards, but honestly did not see a long-term impact from sales tax collection. So my view is that it's unlikely to be a significant – have a significant impact on e-commerce.

[Jason Celino:]

Okay. Great. And kind of last question, if I can. Any updates on your drop shipping business? You had 30 retailers kind of signed up last earnings call. How is progress going? Any updates?

[David Spitz:]

Yes. It's going really well. My goal at the beginning of the year was to triple the size of our retail network. This year, we've already done that through the first half of the year. So we're well ahead of the plan there, seeing good market acceptance of what we're doing. So it wasn't my intent every quarter to talk about the number of retailers signed up. So I didn't bring it up in my prepared remarks, but feel really good about the progress we're making in that part of the business.

[Jason Celino:]

Great. I appreciate the questions. Thanks.

[Operator:]

Thank you. And our next question comes from the line of Scott Berg with Needham. Your line is now open.

[Scott Berg:]

Hi, David and Mark. Thanks for taking my questions. I guess I have two. David, wanted to see if you could comment a little bit more on some of the sales efficiency improvements. It sounds like bookings per rep are up. Wanted to see how we should view that relative to some of the other things around maybe attrition or just thinking about customer count going forward. It sounds like you're clearly making improvements there, but does that actually translate to maybe better customer numbers in the second half?

[David Spitz:]

Hey, Scott. Great question. So overall, yes, we're seeing a couple of things. Broader attainment across our sales organization, meaning there's a higher proportion of reps that are hitting or exceeding their number, which we think is good; and number two, just as you said, a higher dollar booking per rep as well, which is also good. And we don't forecast customer count, especially given the wide range of customers that we have. That can be, I think, a little bit of a tough thing to do. But I spend more time looking at net dollar retention and we do expect to see improvements in net dollar retention in the back half of the year. We've seen, as I mentioned, already some good progress in our U.S. geography where nominal dollar churn was down on a dollar-for-dollar basis in the first half compared to last year even with revenue growing in that period and I think that some of the things that we've done in the U.S. will start to percolate in other geographies as well. So I do believe at some point that, that has to have a positive impact on customer count, but not forecasting it specifically for the back half.

[Scott Berg:]

Great. And then my follow-up question is on some of your partner impacts to channel partners. You called it out a couple of times in your prepared remarks. But how do we think about impacts on the revenue side of some of the improvements that you're seeing there? Don't know if these are small opportunities that might take a year or two to really see what that impact looks like. Just trying to understand maybe how those improvements really impact the business. Thanks.

[David Spitz:]

Yes. It's a fair question. They're all different, which is a little bit part of the challenge in terms of – excuse me, modeling them. And they tend to be volume-based, right? So I mentioned, for example, a global carrier that we launched that has replaced a series of in-house integrations with ChannelAdvisor. That has a lot of potential. We don't – we're not selling to the customer there. We're not directly driving the volume to that platform. It could certainly be a significant revenue stream, but it's very hard at this point to project when and how much. I think as we get a few more quarters of experience under our belt with these various partner programs that are either live or that we anticipate signing, we'll have a better handle on the expected volume. But at this point, some of these are just a little bit too early to say. I will say that we did enjoy higher revenue growth than we expected, in part not just because of GMV, but because of partner revenues, so the ones that have been in place a little bit longer are beginning to contribute nicely to revenue side.

[Scott Berg:]

Very helpful. Thanks for taking my question.

[Operator:]

Thank you. And our next question comes from the line of David Gearhart with First Analysis. Your line is now open.

[David Gearhart:]

Good afternoon. Thank you for taking my questions. So my first question, last quarter, you talked a bit about the Marketplaces outside your top two in aggregate being number three in size and, directionally, you said that grew faster than Amazon in Q1. Just wondering if you could give us an update on that directional commentary if it was about in line with that growth or faster than Amazon in Q1 for that group?

[David Spitz:]

Yes. I mentioned it very briefly in my remarks. It continues to be a fast grower for us. It continues to be our third largest Marketplace channel in aggregate. I didn't talk about growth specifically and I don't have that number in front of me. It does continue to be a fast grower. Whether or not it's above or below Amazon in Q2, I don't have that in front of me. But it continues to be a fast grower. If it's not faster than Amazon, it's likely to be close.

[David Gearhart:]

Okay. Thank you on that. And then just in terms of the 100,000-plus customers, just wondering if you can give us the metric on that. I think I missed it, the number of 100,000-plus customers you have ending the quarter or added on a sequential basis.

[Mark Cook:]

I don't really provide the exact count. Let me get you back with that real quick. This is Mark. Basically, I think we said that, that count decreased by a net six during the quarter, which we didn't provide an exact count at this point in time. I can't recall we provided that count last quarter or a year ago, but I'm pretty sure that's in some of our prior scripts.

[David Gearhart:]

And then what was the annual committed revenue for that group – of the overall group?

[Mark Cook:]

Yes. The overall group, we did not provide that exact number. I did say that in that group that, that value increased by $3.3 million over the prior year. So I think we may have provided that number a year ago. So you could simply just do the math on that as well.

[David Spitz:]

It's important to note that the change in that metric though was not due to churn. It was due to migration into smaller buckets. So customers that were at a renewal point and maybe not doing the volume, they expected dropping below the $100,000 mark. So I just want to make sure that that's clear.

[Mark Cook:]

And again, just to complete that, eight customers that grew year-over-year, six customers that declined for the quarter that were related to migrations and $3.3 million increase in that bucket year-over-year.

[David Gearhart:]

Okay. That’s it for me. Thank you.

[Operator:]

Thank you. And our next question comes from Scott McConnell with D.A. Davidson. Your line is now open.

[Scott McConnell:]

Great. Thanks for taking my question. So we've noticed more and more of Amazon's own private label products not only being sold, but also advertised on their site. Has this had an impact on your ability to maybe get seller ads onto the site? Or what impact has it had on selling on Amazon generally?

[David Spitz:]

Scott, this is David. No, nothing that we've seen. If you look at Amazon's latest quarter, for example, third-party unit volume was up to an all-time high of 53%, which is up I would think up from 52% in Q1 and 50%, give or take, over the last few quarters. So third-party unit volume continues to grow on Amazon. And my view is that Amazon advertising is still a very underpenetrated opportunity for brands and sellers in general. So for sure, Amazon is doing a lot in private label. We think it makes sense for them where they see demand that's not being met by products that they have from other vendors or sellers. It behooves them to make sure that, that selection is available on Amazon at competitive prices, but I think it's more – frankly, I think it creates more of a halo effect, right? So it draws more consumers, more consumers come, and you see essentially a rising tide for everyone selling whether selling third party or first party. So we think Amazon Marketing Services is table stakes. We think that that's almost anyone selling on Amazon should be leveraging the various advertising programs. And so at this point, I don't see it as a zero-sum game if that makes sense.

[Scott McConnell:]

Got you. Okay. Second question is – so I know you mentioned the switch you guys had made to focus more on revenue retention rather than churn [ph], but has your focus on smaller count helped – I mean, focus on smaller count servicing translated at all to signs of improvement in that area, specifically with smaller count? And do you expect to improve retention in the future?

[David Spitz:]

Yes. I've been really pleased with the sequential progress I've seen this year, including going into July with customer retention and revenue retention. So we now have account coverage across our entire customer base, which was not something that we had previously. So previously, customers that were below a certain revenue threshold were – essentially did not have ownership within ChannelAdvisor. And so now that we have all of that covered and every account of it signed, they're getting more attention. We're looking at things like feature adoption, making sure that those customers are leveraging the platform to its fullest extent, helping them out with issues if they are having issues, for example, getting listings live on a particular platform, whatever the case may be. So I've been really pleased with some of the early results that we're seeing there and that's why I'm bullish that in the second half of the year, we'll start to see even more of the benefit from those efforts.

[Scott McConnell:]

Great. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Zach Cummins with B. Riley FBR. Your line is now open.

[Zach Cummins:]

Great. Thank you. I’ll just start up by saying congrats on the strong Q2 results. But you really highlighted your strong performance on eBay during the quarter, but as eBay is starting to kind of transition to a product-based shopping experience, do you think it's going to have any impact on your customers in the second half of the year?

[David Spitz:]

Zach, I appreciate the commentary. I think – look, I think it's something eBay has to do. They've been working on it for a long time. It makes sense for consumers. It's hard to predict, right? So knowing exactly what the impact is going to be depends on what categories they will allow, when they will amount, how aggressive our customers are in adopting the standards that they need to adapt. I would say generally, I feel like our customers are better positioned to adopt to those – adapt to those kind of changes. We've been working very closely with eBay on the entire program to make sure that as many sellers are – because it make sense for eBay to work on that as well, right? They want the high quality seller, the larger professional sellers adapting those capabilities and other things like guaranteed delivery, as I mentioned in my prepared remarks. So it's pretty important I think for eBay. And if I were to wager, I would say our customers should have an advantage as that rotation happens, but we'll have to see.

[Zach Cummins:]

No. That's really helpful. And then in terms of Amazon's Marketing Services, it's been growing at a pretty rapid rate over these past couple of quarters. I doubt you can provide any quantitative metrics around it, but could you provide just sort of a qualitative commentary around the percentage of your customer base that's currently utilizing these Amazon Marketing Services as they sell on that platform?

[David Spitz:]

Yes. I think it's still pretty small across our customer base. I don't have a percentage for you, but I've spent a lot of my days talking to brands. In fact, after this call, I'm flying out to another city to meet with a brand in the morning that's evaluating their overall Amazon strategy. They really don't have one today and they're – and that's very typical. There's a lot of brands that I meet that have really, I think, gotten a religion at this point. They're past the point of kind of waiting and seeing and are fully in this mode now of, okay, we need an Amazon strategy. We need to figure out, are we doing first party, third party? How do we leverage AMS? So it's still, I'd say, very early days, very fragmented, a lot of learning going on, but pretty much everybody I talked to is in action mode as opposed to kind of observing what's going on around them because I think we all feel like this is something that they need to do. So I think it's still pretty early.

[Zach Cummins:]

Okay. That’s helpful. That’s all I had for now. So congrats on the strong quarter and best of luck in the second half.

[Operator:]

Thank you. And that concludes our question-and-answer portion for today. So with that, I'd like to turn the conference back over to CEO, Mr. David Spitz, for any closing remarks.

[David Spitz:]

Yes. We're really pleased with the second quarter. And so I appreciate everybody's time on the call today and we look forward to speaking with you again soon. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.