ChannelAdvisor Corporation
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to ChannelAdvisor First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question-and-answer session, and instructions will follow at that time. I would now like to introduce your host for today's conference, Mr. Garo Toomajanian with Investor Relations. Sir, please go ahead.

[Garo Toomajanian:]

Good afternoon and welcome to ChannelAdvisor’s conference call for the first quarter of 2017. My name is Garo Toomajanian, and with me on the call today are David Spitz, ChannelAdvisor’s Chief Executive Officer; and Mark Cook, ChannelAdvisor’s Chief Financial Officer. After the market closed today, we issued a press release with details on our first quarter performance, as well as our outlook for the second quarter and full year 2017. 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 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 potential sales tax obligations. A reconciliation of all non-GAAP measures to the most comparable GAAP measure is included in our press release. Finally, at times in our prepared remarks 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?

[David Spitz:]

Thank you, Garo. I was pleased with our performance in the first quarter. With revenue of $28.3 million exceeding the upper-end of our guidance range and representing 8% growth year-over-year or 10% on a constant currency basis. Our revenue performance also yielded adjusted EBITDA with exceeded our guidance range below off with $800,000 for the quarter. Growth in our core marketplace stock home was strong with 14% in part due to an improvement in the Amazon GMV in particular improved same-store sales performance for our customers during the first quarter compared with the fourth quarter of 2016. Recall within the fourth quarter, we had emphasized that heavy promotional activity had shifted the mix of Amazon product sales towards first party products, impacting our third party seller sales growth. Based on our first quarter same-store sales data and Amazon's recently reported first quarter results, we believe the mix of third party and first party has returned to more normalized levels and was reflected in our customers' results as well contributing to healthy variable revenues. We also believe our focus on analytics and optimization technology such as our algorithmic repricer is helping more of our customers strengthen their competitive positions in marketplaces and helping to improve their sales growth, and we continue to focus on expanding the adaption of these capabilities across our customer base. In addition revenue churn as a percentage of total revenue for our marketplaces platform continue to improve reflecting our ongoing focus on customer quality. These improvements help to contribute to a relatively strong overall customer account increase of 29 net ads in the first quarter, our first meaningful sequential increase in six quarters. Although, one quarter does not make terminate and we could still see some variability in this metric going forward. We believe this indicates that we are nearing the end of our transition of market. While we do not relatively managed to specific customer account for average revenue per customer of targets, we do expect average bonds to see a more balanced contribution to revenue growth from both. Offsetting some of the strong growth on our marketplace and other solutions as a 13% year-over-year decline in our digital marketing revenue, reflecting impart the loss of a department store resell customer during the quarter representing the impact of roughly $1 million in revenue for 2017. Although, we did not lose this customer on the basis of our performance, digital marketing is a highly competitive segment and we were not able to reach mutually acceptable terms for renewal. We remain in conversation with this formal customer and anticipate we will have the opportunity doing back part for all of this business within the next year, but for now it has impacted with our digital marketing projections for 2017. Now I realize a decline in digital marketing revenue may give rise to questions as to strategic importance and value to us so let me address the couple of points on this topic. As we've highlighted previously digital marketing revenue has not grown for several years now but it has contributed to our overall profitability. More importantly, we believe there are opportunities to leverage our existing platform and investments into new growth areas serving brand such as advertising on Amazon and Facebook. In fact, we have already signed several brand clients to manage their Amazon advertising programs and offering as I just recently announced that our Catalyst sharing knowledge. A little advertising on Amazon is still a relatively small part of the ecommerce landscape, we believe it is increasingly important for brand and will grow quickly. More broadly as market basis continue to take share of ecommerce sales advertising on marketplaces becomes a must have capability, whether you are talking about Amazons sponsor products or headline ads, eBay sponsored listings and so on. And having this capability in our platform is important so that we can offer customers a differentiated logistic platform to manage their marketplace sales. So despite the near term revenue headwinds we see in digital marketing, we believe we have strategic value to us and will be a growth driver for us in the future. Beyond digital marketing we are particularly pleased with our performance in marketplaces and brands and we believe the strength in those areas is enough to offset as near term digital marketing's declines and allows us to remain confident in our previous 2017 revenue guidance. Speaking of brands we were pleased to welcome several new customers to the ChannelAdvisor platform in the first quarter including BIC Consumer Products, Carl Zeiss Consumer Optics, Cole Haan, The Gap, Ocean Spray and Kill Cliff. We also expanded our relationship with the number of clients including Kimberly-Clark. Our broad capabilities, which can help brand and retailers across spectrum for those who are just getting in e-commerce, to those who are doing it for years combined with our global foot print, continue to attract world class clients to ChannelAdvisor’s and we're excited to help drive strategic e-commerce growth. For me personally the biggest highlight of the quarter was our annual Catalyst conference where we announced several significance enhancements to our platform. Our most exciting new offering was the unavailing support for first party and drop chip selling models, which complements our history of facilitating third party marketplace sales. Within initial retail network comprising Amazon, jet.com and Overstock, they are now able to support the fourth factor of product sales for sellers on these platforms and we were working hard to expand our retail network as quickly as possible. It estimated that first party sales is comprised worth a half of Amazons total retail volume and sort of exposes to significant new potential areas of the market that were previously untapped. We also announced our ChannelAdvisor’s fulfillment network offering native and direct integration for various carriers like FedEx and UPS to help reduce cost on complexity for us customers and then enable more advance fulfillment optimization capabilities. And we add that support for Amazon marketing services, announce product content optimization and expanded our outgrowth in a pre price to new channels like EBay. These are just some of the many improvements and enhancements we've made for our platform in the last year and kudos our engineering team which has been cracking up some awesome new stuff for our customer. From a go-to-market prospective, we’re excited that Paul Forte our new Chief Revenue Officer has hit the ground running and has brought a ton of positive energy to the team. He has been very well received across our sales organization, and as of this week, he has hired a new managing director in the UK with whom he's worked with past. And we believe Paul's leadership is already having impact on our results. Although, we do not particularly comment on booking on a quarterly basis, I will say that we have enjoyed the strong finish to Q1 and while one month's that not a quarter make April sales performance leaves us pretty optimistic with what may the best part of the quarter we had in the years. So I'm bullish, on what Paul is going to do to help our organization accomplish in the coming quarters. Finally, lastly we're very pleased to announce a strategic partnership with EBay, we were close to them, help grow our new and existing sellers on EBay market place. Although we've worked with EBay for 16 years, this is the first time in our long history together that we've formalized strategic partnership to help drive mutual growth. EBay remains us formidable force in e-commerce with a 167 million users and we're excited we're working with them more closely. We believe the strategic partnership will help drive incremental GMV growth on EBay which intern, should contribute to incremental revenue growth for us in 2017. Although at this point, the benefit is difficult to quantify. In summary I'm pleased with our first quarter performance. We deliver results but exceeded our guidance, delivered a meaningful improvement in customer account and saw strong growth in our market place and brand offerings. Our new sales leadership has been hit the ground running with promising early results and as such I'm optimistic we're close to wrapping up our transition of market and getting that behind us and believe accelerating revenue growth is achievable by the end of 2017. With that, I will turn the call over to Mark for our financial updates.

[Mark Cook:]

Thanks, David. I will now provide an additional detail on our first quarter 2017 financial performance and our guidance for the second quarter and full year 2017. Revenue in the first quarter was $28.3 million, an increase of approximately 8% or 10% in constant currency over the first quarter of 2016 and exceeding the top brand with our guidance for the quarter. This will despite the 13% year-over-year decline in digital marketing as David mentioned. The impact of the British pound was almost $500,000 in compared to rates during Q1 2016 as well. Fixed subscription revenue of $23.1 million, increased 9% or 12% in constant currency from Q1 a year ago and was 78% of total revenue. Variable subscription revenue was a healthy $6.2 million or 23% of total revenue. In the first quarter, the 2% increase or 4% in constant currency from a year ago. This modest year-over-year growth reflected our exceptionally strong variable performance in the first quarter of last year. Revenue from outside of the United States was approximately 5.8 million or 21% of our total revenue in the first quarter compared to 23% of total revenue in the same quarter a year ago, primarily due to currency fluctuation. We ended the quarter with 2,904 customers, an increased from the 2,875 customers at the end of Q4, 2016 and 2,881 customers at the end of Q1, 2016. At the same time average revenue per customer grew 12% to exceed $40,000 for the first half, as $40,051 on a trailing 12-months basis, compared to $35,753 a year ago. Continuing the discussion related to our customers, trends remain positive related to the retention. In the first quarter, we added 66 net new customers with committed annual revenue of greater than $15,000. In contrast, we terminated 37 net customers with committed annual revenue of roughly $15,000 during the first quarter. As a reminder, committed annual revenue is the fixed amount of annual revenue for which a customer has minimum contractual commitment and does not include variable revenue. Continuing our shift toward drawing and acquiring larger customers and increasing deal size, the number of customers over $100,000 of committed annual revenue was 147 at the end of the first quarter, an increase of 23% growth from a 121 a year ago. The committed annual revenue from those customers increased 14% to $24 million at the end of the quarter from $21 million a year ago. Moving to the expense side of the P&L, please note that my comments regarding expenses will be on a non-GAAP basis and all comparisons on a year-on-year basis, unless otherwise specified. Our press release that we issued today includes GAAP to non-GAAP reconciliations for gross profit, operating expenses, operating income loss, adjusted EBITDA, non-GAAP net loss and for free cash flow. We also provided a GAAP to non-GAAP reconciliation schedule on our website, which can be accessed on the Investor Relations section of our website at IRchanneladvisor.com. First quarter 2017 gross profit increased 11% to $21.8 million, from 19.7 million a year ago. As a result, our gross margin expanded 210 basis points to 76.9% as we continue to scale. Operating expenses of $24.4 million for the fourth quarter were up 17% from a year ago, primarily due to a 23% increase in sales and marketing expenses and a 19% increase in R&D. The increase in sales and marketing expenses expense as compared to year ago was primarily due to shifting of our annual Catalyst conference from Q2 in 2016 to Q1 in 2017 as well as the result of increase sales headcount compared to Q1 2016. Meanwhile, our increased R&D spending reflects investments and new offerings including that we announced at Catalyst. This discussion is focused on non-GAAP expenses, I want to address a specific GAAP items. Our 2015 and 2016 SEC form 10-K filings made referenced to indirect tax on amount and certain jurisdictions could be area. We also indicate that such amount did not consider any revenues including those which may be offered by jurisdictions. During the first quarter, we completed our analysis with regard to possible exposure and potential unpaid sales tax obligations. Based on the results of analysis, we made the decision to enter to voluntary disclosure agreements otherwise known as VDA with certain jurisdictions and it also reduced our potential sales tax exposure. As background, VDA generally provides for a maximum look back period a labor penalty and at times interest as well as payment arrangements. We've estimated a VDA 2.5 million which we recorded as a one-time charge to G&A expense in the first quarter in 2017. It is possible that the actual aggregate VDA reliability may be higher or lower in this estimate whether our decision to enter into VDA may prove unsuccessful may not resolve all unpaid sales tax obligations. We expect to have the VDA process complete within the next 12 months. Operating loss excluding the non-recurring VDA expense was $3.6 million in the first quarter compare to a loss of 1.2 million a year ago. As discussed, year-over-year operating income in the quarter was negatively impacted primarily by our Catalyst conference as well as increase sales expense. Adjusted EBITDA was a loss $800,000 for the first quarter 2017. Better than our guidance range, these are the combination of those anticipated revenue, increased gross margins and lower than expected operating expense, and comparing adjusted EBITDA of 936,000 in the first quarter a year ago. Non-GAAP net loss was $2.6 million compared to a net loss of $1.1 million for the first quarter of 2016. Now, turning to our balance sheet, our cash position remained strong though it declined slightly during the quarter as it typical does in years for Catalyst in the first quarter. We ended the quarter with $63.4 million in cash and cash equivalents, a decrease of approximately $2 million in the end of the fourth quarter, but an increase of $1.7 million from March 31, 2016. The sequential decrease is primarily a result of payment related Catalyst, repayment of capital leases and payments also related to net share settlement for restricted stock units during the quarter. Operating cash flow was positive $351,000, the free cash flow reflected renew to during the quarter after $360,000 of capital expenditures. Now, I will turn to guidance. First, as you are aware, there were significant strengthening of US dollar during 2016. As we stated during our Q4 2016 earnings call, we expect continued currency headwinds specifically related to the British pound, making comparable difficult for the first half and full year 2017. As mentioned revenue from digital marketing down 13% for Q1 2017 compared to the year ago and as a result we expect digital marketing to represent a slight additional headwinds for the balance of the year. Consistent with re-pass practice, we do not intend to disclose our revenues apart on a quarterly basis. In fact with this background for the full year 2017, our guidance revenue remains unchanged with a range of $123 million to $124.5 million, despite the additional headwind related to digital marketing. This represents growth in 9% to 10% compared to 2016 were approximately 10% to 12% on a constant currency basis, after adjusting for an estimated negative currency impact approximately $1 million to $2 for the full-year to 2017 when compared to the average rates during 2016. We continue to anticipate full-year 2017 adjusted EBITDA between $5 million and $8 million. This reflects our goal continuing to invest in our business while generating at least breakeven adjusted EBITDA as measured on a trailing 12 months basis. For the second quarter of 2017, we were anticipating revenue of $28.4 million to $28.8 million, representing growth of 5% to 6% from the year ago quarter. This includes a two percentage point headwind based on current exchange rates. We expect adjusted EBITDA loss for Q2 2017 to negative $1.2 million and $800,000. As a reminder, our objective is to strategically invest in the business primarily areas that can report a long-term growth including adding key sales reps and account managers, as well as increasing our investment in R&D, while producing breakeven adjusted EBITDA on a trailing 12-months basis. Investor should expect some quarters to have negative adjusted EBITDA from time-to-time. In summary, we are off to just starting 2017, and believe that we moving into business in the right direction as we've told you long-term. We remain optimistic as we see revenue growth start to improve on a quarterly basis by the end of 2017. With that operator, we like to now open the call to questions. Thank you.

[Operator:]

[Operator Instructions] Our first question comes from the line of Brad Reback with Stifel.

[Brad Reback:]

With respect to digital marketing, are there any other large customers up for renewal this year?

[David Spitz:]

Hi, Brad. This is David. So, vast majority of our contracts are annual contracts, so we have to be as we this is a larger than average customer obviously but most of our contracts are one year.

[Brad Reback:]

And as you sort of think about the buildup of the revenue guide for the year, have you been more conservative with your renewal assumptions?

[David Spitz:]

I'll refer Mark on that.

[Mark Cook:]

We don’t have made any specific, I guess calculations as you might want to make in terms of digital marketing specifically and as far as more little more of us concern, we continue use the package we always have when we do our forecast.

[Operator:]

Our next question comes from Matthew Pfau with William Blair.

[Matthew Pfau:]

First, just want to dig in a little bit more on the digital marketing side, maybe if you could help us understand for digital marketing in relation to the marketplace opportunity. How much of the digital marketing business is related to marketplaces right now? And then going forward as marketplaces potentially becomes a bigger component of that in terms of advertising the marketplaces, how do we think about that opportunity size wise relative to the more legacy digital marketing opportunity?

[David Spitz:]

Hey Matt, this is Dave. So, we don’t break it out quite that specifically, but the significant part of today's digital marketing is traditional search engine marketing, product listing ads, even comparison shopping sites which are gradually going away. But that’s still a bigger part of that it then some of the marketplace marketing that I talked about. So eBay sponsored listing, the Amazon sponsored products things like that. We do think that over a period of time, market place advertising becomes significant, I evenly may deploy my key note at our show that I expect within a few years that AdSense or Amazon, if it relates to retail e-commerce could rival Google, I but don’t think some that we will see this year.

[Matthew Pfau:]

Got it. And then just wanted to dig in to the macro a little bit. Obviously, the retail headlines, mostly on the -- more of on the brick-and-mortar side have been fairly negative. So, as retailers rationalize their assets and go through these strategy changes. How do we think about that in relation to the impact on your business?

[David Spitz:]

Yes, I think It sort of kind of two cities out there, Amazon by some accounts continue to consume the majority of retail growth tower, online and offline in the U.S. at least, putting significant pressure on retailers. And I'm sure that that’s factoring how some retailers think about, how they manage with these programs and their AdSense. But at least consistent with our historical philosophy, we don’t chase price. We believe we offer valuable platform and we're not materially always going to be able to reach accommodation, if somebody is working to reduce cost. So, I think retail is under pressure, there is no denying that and it is the part of our business and our expectation is that Amazon and other market places will continue to take share they have over the last two years in our business.

[Matthew Pfau:]

Got it, and then last one for me. You mentioned that you saw a bounce back in Amazon in the quarter. Maybe just some commentary on how some of the other marketplaces performed in specifically, Wal-Mart, if you kind of saw prior momentum that you had in that channel pick up as well?

[David Spitz:]

Wal-Mart continues to be a nice contributor to GMV and derivative revenues as a result of that, which is good to see. It's still obviously not at the same magnitude as Amazon, but it is a driver for us. So, in general I would say the marketplaces that we see across the spectrum generally are getting pretty well. I would include eBay in that as well. So, I think all of things that we talked about over the last couple of years in particular the other shift in mobile, which in our view favors aggregators i.e. marketplaces. We think we see that playing up and we see marketplaces in general taking share, but of course we see Amazon taking more share than others.

[Operator:]

Our next question comes from Monika Garg with Pacific Securities.

[Monika Garg:]

First on a drop shipping the new product you announced maybe can you talk about how is the customer response for the product when can we see revenue contribution from it?

[David Spitz:]

I think it's -- initial response has been positive. This is obviously something that we rolled out just the number of weeks ago, so it's still a little bit early from a commentary around revenue or even bookings at this point. But I would say that we're being -- this is something that customers have been asking us for, for a some period of time, and I think the fact that we are now able to bring that solutions to market has been positively received. It's going to be important for us we continue to build out the resell network. Obviously, we are starting out with the smaller set of the most critical retailers, but that's something that we expect you'll see some meaningful expansion on those over the course of the year.

[Monika Garg:]

All right, thanks. Then most [Indiscernible] has linked share to you. Do you still see them in the market?

[David Spitz:]

Honestly, I don’t -- I can't recall a deal where we've been in a competitive situation probably in the last year, also top of my head.

[Monika Garg:]

Then, if I look at the mode of the guidance in the back half of the year, it's a least decent amount of acceleration in the top line which is just small in the midpoint. So what gives you kind of the confidence that we would see us acceleration back half of the year?

[David Spitz:]

I'll share a couple of qualitative things and then see if Mark has anything to add. Number one, as we get to the back half for were annualizing some of the currency effects that we saw in the back half of last year following Brexit. Number two, some of those performance that we've seen out of the sales team in the last few months what I think gives us increased confidence and some of the work as an example what we are doing abating into the development with our partners I think will also as I've said in my prepared remarks slightly to contribute the incremental GMV and revenue growth. So there are few things that plays here that we think gives us confidence that we will start to see improvement in revenue growth at least measured on a quarterly quarter-over-quarter basis as we get through the back half of the year. Mark, do you any else?

[Mark Cook:]

Sure. Monika, that is correct in terms of currency if you recall, first half of the year when we talked about on the Q4 earnings call, the majority of impact recently alleviate that in the back half, so that's part of the reason there. So, we feel pretty good about that and obviously or something happened like Brexit in last year. So, that's a comparing basis adjusted. We're off to a pretty good start in the first quarter and as we mentioned just as April as well for this year too. So, we expect to see some benefits from that.

[Monika Garg:]

Last one for me, you commented that for Amazon, you saw the balance between third party and the first party kind of bounce back in the quarter. How do you see that there could be a risk that Amazon changes that mix going forward?

[David Spitz:]

Well, that's hard to predict Monica. And there is the one data point that Amazon does publish is the mix of the unit volume between first part and third party and it's going from 49% in Q4 which was actually a pick down from the prior quarter back up to 50% in Q1, which is where I think it's been prior to Q4. So, that’s one indication. And then beyond that we really don’t have own data to look at. It's possible that it will happen again in fourth quarter, fourth quarter is a long way and it's hard to pin down. But at least some of the model that we have in place taking to account, some of those year-over-year things that happened in the past and so we've done our best to account for them in our forecast.

[Operator:]

[Operator Instructions] Our next question comes from the line of Scott Berg with Needham.

[Pete Needham:]

This is the Peter Needham in for Scott, such as couple of quick one here. I guess as you backing up with the prior question on the first part of your drop ship offering. Can you provide any additional color on how that -- how you thing it expand your time may be the revenue potential, which I'd assume has a different price point in the traditional market place?

[David Spitz:]

Hey Peter. This is David. So if you look at various players in the state. I mentioned on the earlier part of the call, most estimates out there are paid the Amazon roughly at 50% first party, 50%, third party. So, as relate to Amazon, it opens up at least on a GMV basis and a unit basis opens up essentially another Amazon for us as that make sense in terms of size and opportunity. And I would say if you look at other market places like Jet or Wal-Mart, our best estimates are that especially if you look at walmart.com, the first party remains the significant majority of the sales on Wal-Mart versus third party sales. And beyond that, there are number of retailers that have robust drop shipping programs, who may not do anything in terms of having a market place on their site. So, it's more common practice for retailer who is looking to expand selection and quote on quote virtual inventory to have a drop ship capability because it’s a little bit closer to what they used to. They're still the merchant the record, they're still setting price, they're still duration and selection and assortment process. But they are getting the benefit of not having the carrying physical inventory. So, we think the universe retailers where this is applicable. They likely to be a lot more retailers in the IR 500 for example that are doing drop ship than retailers in the visitor in market place. So, we don’t -- I don’t have a quantifiable number to give you, but we do believe that there is significant opportunity in this space that's comparable to our estimates of the Tam [ph] and third party.

[Pete Needham:]

So, is there any way we can quantify some of your customer metrics around number of customers on a yearly basis, that you've experienced that completely moved from third party to first party or number that utilize a first entered party offerings in Amazon. I guess my understanding is this first party will help you retain some of that GMV, but the customer that left from third to first simply from losses. So, I would assume this would help not only keep customers, but help drive up the GMV, so just trying to understand what that makes keep look like going forward?

[David Spitz:]

I understand your question, so it's typically little bit more new launch in that, it's not often that somebody just goes completely from third party to first party. More often what you see and this is more applicable on the brand space to be clear, if a brand has built up a successful third party presence and is selling a lot of product, there is a point at which the marketplace and this could be Amazon, it could be Wal-Mart, it could be Jet. We reach out to that brand and say, we would like to take the top 10 or whatever skews and sell them first party because we retailer hold the marketplace and want to be able to set the price, we want to make sure we have competitive pricing. And so, it's not kind of that somebody switches one of the other it's more of that you'll will see an erosion of the catalogue that is available third party seeing migrated over the first party so that the retailer household with the marketplace and set the price. So this is way for us to staunch and have a single solution that the vendor and its case then use to manage both third party and first party. So, it should protect GMV better than we've been able to do in the past, but it also I would say echo with me more important is as we sell to more and more brands, many brands they don’t start to the third party they start with first party. They will ship pallets for example to Amazon or Wal-Mart for wholesale to sell on the website and but it's often not there entire products catalogue. And so, this is a way of beginning to work with brands on a wholesale basis and first party and then gradually opening up with third party. For example, you have a brand that's got a variety of 400 different products, but they are only wholesale in 50 to given the retailer. And there is an opportunity to take the other 350 and put them on marketplace third party. So, I guess my point is that as we increase our presence and sales to brand, first party becomes in many ways the place for brand starts as opposed to starting from third party and go into first party. Does that make sense?

[Scott Berg:]

Now, it does. Appreciate the color. And then just final question, I know he's only been in the role Paul for I guess just a quarter. Can you highlight any changes you’ve made initially to the go-to-market structure? Are you making any changes to the comp structure just trying to gage where productivity was and where it could be?

[David Spitz:]

Yes, sure. So, as I mentioned in the call, Paul has hired a Managing Director in the UK, someone who is he worked within the past and that person actually started earlier this week. So, they're already installed. Comp plans were set to beginning of the year and I don't believe that there is any meaningful change that's coming. I think we're generally pleased. We had heavy involvement from finance, SG&A and structuring our confidence, but these are I think generally considered sound. And Paul is now that he passes first quarter and I think evaluating the team and the productivity, and I'm sure he'll have some additional ideas, but at this point no dramatic changes that the Paul has proposed for me.

[Operator:]

I am showing no further questions in queue at this time. I would like to turn the call back to management for any closing remarks.

[David Spitz:]

Thank you everyone. We look forward to speaking with you again in the near future.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.