ChannelAdvisor Corporation
Q4 2017 Earnings Call Transcript

Published: 14 Feb 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2017 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 follow at that time. [Operator Instructions] I would now like to introduce your host for today’s conference, Garo Toomajanian, Investor Relations. Sir, please proceed.

[Garo Toomajanian:]

Thanks. Good afternoon, and welcome to ChannelAdvisor’s conference call for the fourth 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 fourth quarter performance as well as our outlook for the first 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 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 or Form 10-Q as well as 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 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?

[David Spitz:]

Thank you, Garo. ChannelAdvisor’s robust industry-leading platform help sellers connect with customers, optimize operations and grow sales. We’re focused on driving innovation to provide our customers with a technology platform they need to thrive in a constantly evolving market. Now we’ve been on the frontline of e-commerce since 2001, and we’re committed to leveraging our experience and knowledge as a thought leader in this space to help customers excel. Today, I’d like to briefly recap our 2017 performance, discuss our fourth quarter results, highlight our plans for 2018, and leave ample time to take your questions. Starting off with a brief review of 2017, let me first speak to gross merchandise value, or GMV, an important measure of our customers’ health, although an imperfect proxy for our performance. Our customers processed an aggregate GMV of $8.9 billion on our platform during 2017, which was a 10% increase over 2016. Although this is slower than the 19% growth rate in GMV we enjoyed from 2015 to 2016, growth in GMV actually improved during the course of 2017, increasing from mid-single digit year-over-year growth in the first half to low double digit growth in the second half, a positive trend as we head into 2018. I’m especially encouraged by our GMV performance on Amazon. Recall that in Q4 2016, we saw a significant deceleration in Amazon GMV growth to as low as the mid-single digits during that quarter on a year-over-year basis. As I have previously reported, we did see ongoing improvement in Amazon GMV throughout 2017 that culminated with fourth quarter GMV on Amazon exceeding $1 billion, our first ever billion-dollar quarter of GMV on any channel, and representing GMV growth of 24% on Amazon for the quarter compared to the same quarter for the prior year. That’s a considerable improvement on our largest channel, and that growth continued to accelerate through January, indicating strength as we begin 2018. We believe this is a result of our efforts over the last year to offer more capabilities for selling on Amazon, such as our Algorithmic Repricer and advanced management for Amazon’s fast-growing advertising offerings and our new support for first-party selling. To give you an example of the tangible benefits of some of this work, customers who used our Algorithmic Repricer on Amazon enjoyed aggregate same-store sales growth of 35% in the fourth quarter compared to 16% for those who didn’t leverage repricing. And although the number of customers using our Algorithmic Repricer has nearly doubled in the last year, it’s still a minority of our customers, so we think there is room for continued improvement as we help more customers adopt capabilities like this. I was also pleased to see eBay GMV growth picking up over the course of the year, highlighting the solid early success of the strategic partnership we announced with eBay early in 2017. Our collaboration to help sellers improve their eBay results paid off, with year-on-year GMV growth accelerating from the low-single digits in the first quarter to low double digits in the fourth quarter, reversing a deceleration we saw during 2016. I’m optimistic that our strategic partnership with eBay will yield continued improvement for our mutual customers. In short, we’re helping our customers to be more competitive in a hypercompetitive environment, and I’m really pleased with the progress we’ve made on that front. Our progress with Amazon and eBay is particularly noteworthy since they represent our two largest GMV channels, although neither comprised a majority of our GMV in 2017. We’re also proud of the contributions from two pivotal hires we made in 2017, namely Chief Revenue Officer, Paul Forte, and Vice President of Global Services, Beth Segovia. Together, Paul and Beth are focused on driving sales, improving our customers’ experience and revenue growth and retention. Under their leadership, we revamped our global sales organization, opened the Denver sales office and instituted initiatives to improve coverage and service delivery to our customers. We also created a new indirect sales team, which has already started to contribute meaningfully to revenue. We accelerated our investments in fulfillment and logistics with our HubLogix acquisition to help customers stay ahead of the curve of rising consumer expectations when it comes to fast and efficient delivery. While each of these changes has helped the business and pointed us in the right direction, we still have work to do to fully capture the opportunity in front of us. Now turning to the fourth quarter. Our financial results were in line with our guidance ranges for both revenue and adjusted EBITDA. That said variable revenue of $9.2 million was somewhat lower than we expected, which was primarily attributable to poor performance of one of our larger marketplace partners relative to our expectations and in contrast Amazon and eBay. On both a same-store sales and gross basis, we saw GMV performance on this marketplace declined significantly for our customers beginning Thanksgiving week and persisting through the end of the year compared to the same period in 2016, impacting our revenue in the quarter by more than $500,000. While it is difficult for us to know it for sure, not unlike what we saw in Amazon in 2016, we believe this marketplace’s performance was cannibalized by a focus on first-party sales as they continue to focus intensely on price competition during the holidays, exacerbated by the fact that this marketplace is still relatively new and does not yet offer sellers meaningful mechanisms to improve performance like repricing APIs, fast and free shipping programs or advertising programs. And due to the inherent uncertainties in predicting marketplace performance, forecasting variable revenue, especially in Q4, continues to be a challenge. Now fourth quarter revenue, the variable revenue aside, I’m very pleased to report that our sales team had a solid Q4, rebounding from the third quarter and posting significant year-on-year growth as organizational changes we made during the year began to have their desired impact on results, including in our North American region. In fact, from a sales perspective, 2017 was our first year of new bookings growth since 2014 and also our best year of total new bookings since 2014. Under Paul Forte’s leadership and our revamps global sales management team, we’re beginning to see tangible improvements in sales productivity and overall production from our sales team. Evidence of this metric – evidence of this is a metric we call net bookings as a percentage of revenue, which we’ve disclosed annually since 2014. It’s the sum total of our new business booked minus churn and presented as a percentage of overall revenue. From 2014 to 2016, that metric has been declining from 22% in 2014 to 15% in 2015 and 10% in 2016, and this decline translated into a decline in revenue growth. For 2017, our net bookings as a percentage of revenue stabilized at 10%, signaling improved momentum exiting the year than we’ve had in the past couple of years. That said, to maintain this momentum, we must continue to execute. And as Mark will share, we are incorporating lessons learned over the last couple of years and being appropriately thoughtful about our outlook given the challenges of forecasting variable revenue, especially with the fourth quarter this far out. Looking ahead in 2018, you can expect us to continue to focus on improving our execution and refining our strategy to grow, innovate and adapt to an ever-evolving market. I’d like to highlight five key forces shaping the e-commerce industry and how our priorities for 2018 reflect those forces. Number one, Amazon. We believe Amazon will continue to gain share in the U.S. and other countries for the foreseeable future. As such, we continued to focus our efforts on helping Amazon sellers gain share in the competitive environment. In addition to the efforts I described a few moments ago, last year, we announced support for first-party selling and Amazon Marketing Services and have seen good early uptake on these offerings. And partnered with Amazon to launch their marketplace in Australia, which according to Amazon, was their most successful country launch in the company’s history. In 2018, we expect to continue working closely with Amazon on multiple initiatives to help Amazon sellers drive more success on our platform. Number two, logistics. We believe proficiency and logistics will separate the haves from the have-nots in e-commerce, and began an initiative last year to give our customers a competitive advantage in this area. Last year, we announced the ChannelAdvisor fulfillment network, enabling leadership integrations and acquired HubLogix, all to help our customers deliver the robust and reliable delivery experience, their consumers expect, while helping to improve their efficiency and profitability. We also have established strategic partnerships with multiple logistics providers, and believe these represent significant growth opportunities going forward. We intend to continue focusing on logistics as a key strategic area of investment. Number three, brands. As traditional retail distribution is disrupted, we believe brands will focus on e-commerce and direct-to-consumer channels with increasing urgency. And we continued focus on building solutions to help brands do just that. Our Where to Buy platform enjoyed revenue growth of over 50% in 2017, and we’re increasingly working with brands to leverage digital marketing, especially on Amazon. Our drop-ship and first-party retail network now includes over 12 retailers and we expect at least triple that number in 2018. We’re still early in building out our first party and drop-ship capabilities, but are pleased with the momentum we’re seeing. For example, we’re pleased to have been selected by TUMI, a leading international business accessory and travel lifestyle brand to manage their Amazon first-party and drop-ship business based on our advanced capabilities. Number four, China. It’s well-known that the domestic Chinese market is already the largest e-commerce market, but less well known is how much of e-commerce volume currently is sourced from China. We believe roughly one-third of top sellers on Amazon and eBay are based in China. Our team in China is focused on supporting these sellers and China was our fastest growing region in 2017. We continue to focus our efforts on expanding in that region. Number five, data. We believe that those who leverage the power of data and automation have a substantial competitive advantage, and our Algorithmic Repricer is just one example. We released our first benchmarking and analytic capabilities a couple of years ago, and continue to advance the ball. Recently releasing a machine learning based inventory forecasting capability to help our customers understand and anticipate demands for their products and avoid under or over allocating capital to inventory. Just another example of how we meet our customers competitive. In 2018, we expect to expand use of machine learning to help customers uncover additional insights and make them more competitive. Personally, I plan to focus on two key areas in 2018. First, continuing to build out our indirect channel, which we believe already has solid traction and holds great promise and second, working with Beth to improve customer success and retention. To be clear, customer and revenue retention rates have been stable and consistent, but Beth and I believe there is room for significant improvement for the year. Despite all of our customer success, I believe you can make our platform easier to use, especially for new customers, and we need to do a better job making sure our customers are adopting and benefiting from our innovations and getting more strategic guidance from us. Beth and I will be working closely on this broad initiative in 2018. Finally, I’d like to express my appreciation for the investors who stood by us over the last three years, at least, as we have transitioned the business to a higher quality customer base and work to build a team and a company that can consistently scale our revenue. This transition has taken longer than I would’ve liked, but I feel we are well positioned going into 2018 and we continue to act with urgency to improve execution and build long term shareholder value. We’re optimistic about the future, and look forward to sharing more details with you at the analyst session at our annual customer show catalyst April 17 through 19 in San Diego. And with that, I’ll turn the call over to Mark for our financial update. Mark?

[Mark Cook:]

Thank you, David. I’ll now provide additional details on our fourth quarter and full year 2017 financial performance and our guidance for the first quarter and full year 2018. As David noted, we finished within our guidance range, although as David remarked, variable revenue in Q4 was larger than we anticipated due to deceleration in GMV on one of our marketplaces during the quarter. With that said, we believe the investments we made in 2017 were important to building the foundation going into 2018 and for the future. Revenue in the fourth quarter was $34.1 million, an increase of approximately 7% over the fourth quarter of 2016. Our fixed subscription revenue of $24.9 million increased 11% from Q4 a year ago and was 73% of total revenue. Variable revenue of $9.2 million was unchanged from a year ago and represented 27% of total revenue. Revenue from outside the United States was approximately $7.7 million in the fourth quarter an increase of 18% from $6.6 million during the same quarter a year ago. This represents 23% of our total revenue in the fourth quarter compared to 21% from the same quarter a year ago, based on improved sales performance reflecting some of the changes we made earlier in 2017 in our international operations. For the full year, revenue grew to $122.5 million compared to $113.2 million for 2016, an increase of 8% year-over-year. Revenue from outside the United States for 2017 was approximately $26.8 million, an increase of 9%, from $24.5 million a year ago and represented 22% of total revenue for 2017, unchanged from 2016. Fixed subscription revenue for 2017 increased 9% to $93.5 million from $86.1 million a year ago and represented 76% of total revenue for 2017, consistent with the prior year. Variable revenue of $29 million increased 7% from $27.1 million a year ago and represented 24% of total revenue. We ended the fourth quarter of 2017 with 2,840 customers. I like to make you aware of an adjustment to our customer count reporting as of the end of the third quarter of 2017. We previously reported 2,902 customers as of that date. Following additional systems integration work we’ve performed in the fourth quarter, we’ve determined that the customer count at the end of Q3 2017 should have been reported as 2,845 total customers. We do not expect any further adjustments to this number. As a result, our Q4 2017 customer count was 2,840 customers, represents a net decrease of five customers from Q3 2017 and a net decrease of 35 customers from 2,875 customers two years ago. This count excludes the approximately 50 net new customers we acquired with HubLogix in Q2 2017. Now average revenue per customer grew 9% to $42,693 on a trailing 12-month basis compared to $39,339 a year ago. This year-over-year increase in average revenue per customer reflects a combination of increased volume across the ChannelAdvisor platform from existing customers and the continued trend of adding a smaller number of large new customers. Specifically during 2017, we added 69 net new customers with committed annual revenue of greater than $15,000. This growth in larger customer count was offset by the decrease of 104 net customers with committed annual revenue of $15,000 or less, which were either terminated or migrated to an annual commitment above that level. While we had a decrease in net customers of 45 during the year, our total committed annual contract revenue increased during 2017 by $8.4 million or 9% year-over-year. As a reminder, committed annual revenue is the fixed amount of annual revenue, for which a customer has a minimum contractual commitment and does not include any potential variable revenue. We also continue to see an increase in the number of customers with committed annual revenue of over $100,000, ending 2017 at 169 of those customers, an increase of 26 from the fourth quarter last year. The committed annual revenue from those customers increased $6 million or 24% to $29 million at the end of 2017 from $23 million a year ago. Now sharing some additional insight to our revenue by product as we did during Analyst Day in 2017. Our marketplaces platform solution had full year 2017 revenue of $93.4 million compared to 2016 revenue of $86.3 million an increase of 8% from 2016. Our marketplaces product represents 76% of our total 2017 revenue. Digital marketing products, which connect customers to search engines and comparison shopping websites, had full year 2017 revenue of $18.1 million compared to $19.4 million in 2016 a decrease of 7% year-over-year. Though digital marketing at 15% of total revenue has been a drag on our top line growth, its revenue has continued to contribute to our profitability. We believe that combined with our Amazon Marketing Services, marketplaces and fulfillment capabilities, it allows us to provide a differentiated, more holistic offering to our branded manufacturer customers. Other revenue includes our Where to Buy solution for branded manufacturers as well as partner revenue resulting from our business development program. Altogether, these offerings generated revenue of $11 million in 2017 compared to $7.5 million in 2016, an increase of 46% year-over-year. Now 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 are 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, gross margin, operating expenses, operating loss, operating margin, adjusted EBITDA, non-GAAP net loss and for free cash flow. We also provide a GAAP to non-GAAP reconciliation schedule on the Investor Relations section of our website at ir.channeladvisor.com. Gross profit in the fourth quarter was $28.1 million, an increase of 18% from a year ago, resulting in gross margin of 82.5%, an increase of more than 3 percentage points from a year ago. This increase was primarily due to a combination of higher revenue, coupled with a decline in cost of revenue compared to the year ago. This was a result of lower headcount attributed to cost of goods sold compared to the same period a year ago. Operating expenses of $25.7 million for the quarter was up 18% from a year ago. The majority of this increase was compensation due to higher sales and marketing, headcount-related investments compared to last year, as well as increased marketing and advertising expenditures. The bulk of the remainder of the increase in operating expenses was from additional investments in R&D, including our new office in Madrid, Spain and staff acquired through our HubLogix’s acquisition. Operating income was $2.4 million in the fourth quarter compared to operating income of $3.3 million a year ago. Adjusted EBITDA was positive $3.9 million for the fourth quarter of 2017 compared to $5.2 million for the same quarter a year ago. For the full year 2017, adjusted EBITDA was $4.6 million compared to $7.4 million for a year ago, and was in the middle of our guidance range. As planned, we made strategic investments in the business during 2017, primarily in areas with the focus was on long term growth, including our new Denver sales office where we’re hiring experienced sales reps and, sales management. We also invested in our business development team in order to further our indirect sales efforts, expanding our R&D footprint, with the opening of our Madrid, Spain office and acquired HubLogix whose talented team members joined us midyear. As stated before, we believe these investments will position us for success and support our primary focus of driving top line growth. Non-GAAP net income was $2.4 million for the fourth quarter, compared to net income of $8.9 million from the fourth quarter 2016. Full year 2017 non-GAAP net loss was $2.1 million, decreased by $7.3 million from non-GAAP net income of $5.3 million for 2017. As a reminder, 2016 net income included a $5.3 million tax benefit during Q4 2016 from the release of valuation allowance previously recorded against our foreign net operating loss. Now turning to our balance sheet. Our cash position remains strong, and we finished the quarter with $53.4 million in cash and cash equivalents, a decrease of $750,000 from the end of the third quarter. The decrease in cash and cash equivalents during the fourth quarter was primarily a result of lower operating cash flow driven by $4.9 million in working capital requirements, including accounts receivables. For the full year 2017, cash and cash equivalents decreased $12 million compared to an increase of $5 million during 2016. A $17 million change compared to 2016 was primarily a result of the strategic investment in sales and marketing, R&D mentioned earlier and an increased investment in working capital of a $9.4 million for related to – in addition an incremental capital expenditures related to refresh of network gear and other hardware requirements and the purchase of the HubLogix. Free cash flow was a negative $5.8 million, a decrease of $15.6 million compared to free cash flow of $9.8 million for 2016. The decrease in free cash flow for 2017 is a result of the reasons just discussed, with a total decrease in cash and equivalents. As of January 1, 2018, we will be reporting results under ASC 606. As such, our guidance for the first quarter of 2018 will be presented on an ASC 606 basis. As background, under ASC 605, we expense commissions as earned by our sales team. Now under ASC 606, we’ll be required to amortize commission expenses for an estimated customer line. You will notice in our SEC Form 10-K filed today an adjustment to retained earnings of between $8 million and $9 million related to the deferral of contract costs and adjustment of retained – to retained earnings related to the timing of revenue recognition of less than $1 million. These amounts represent multi-period adjustments required under ASC 606 and only a portion of which is attributable to 2016. I will speak to the impact on 2018 during my comments on guidance. Further, as everyone is aware, the Tax Cuts and Jobs Act was enacted on December 22, 2017. The new tax law is complex and will take some time for us to assess the implications thoroughly. The most significant impact reflected in our 2017 financial statement is the reduction of our U.S. deferred tax assets caused by the decrease in the U.S. federal statutory tax rate from a top marginal rate of 35% to a flat rate of 21%. I will now turn to guidance, starting with revenue. As we look at 2018, we are encouraged with the momentum we have seen from the changes we made in 2017. But it is still early, and we have work to do to build on that momentum. As we’ve discussed in the past, variable revenue will be difficult to forecast. We anticipate full year GAAP revenue to be in the range of $128 million to $130 million, representing growth of 4% to 6% compared to 2017. Again, this guidance is based on revenue recognition under ASC 606, which is not expected to materially impact our revenue in 2018. Adjusted EBITDA. We anticipate full year 2018 adjusted EBITDA of between $6 million to $8 million. We plan to continue to make investments in our business, primarily in areas that can support our long-term growth, including sales and marketing, engineering and China. For the first quarter of 2018, we are anticipating GAAP revenue of $29.4 million to $29.8 million, representing growth of 4% to 5% from the year-ago quarter. Adjusted EBITDA for the first quarter of 2018 is expected to be a loss between $700,000 and $300,000. In summary, we believe we have built a solid foundation with the investments we made during 2017. A strong finish by our sales team under Paul Forte and the expansion of our strategic partnerships in logistics and fulfillment industry, which we expect to bring more solutions for our customers, all of which make us excited about the long-term prospects of our business. I hope you will join us at Catalyst in April, which includes session for analysts and investors. With that, operator, we’d like to open the call now for questions.

[Operator:]

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

[Monika Garg:]

Hi. Thanks for taking my question. David, first is on the guidance of 2018, previously, I think last couple of calls, you had mentioned that 2018 could be modestly better than 2017, but the guidance is somewhere 5%, 6% top line growth. Maybe walk us through more details on the guidance side.

[David Spitz:]

Yes. Thanks, Monika. I think we have a couple of dynamics here. One is feeling very good about the sales momentum going into the year. And of course, we need to continue to execute on that during 2018. Countering that is a couple of years now where Q4 variable has been flat and we’ve had some marketplace dynamics that have made it lighter than – made variable revenue lighter than we anticipated. And I think after a couple of years of that, our feeling is that it’s appropriate to de-risk the outlook for variable revenue. And I think that’s a big see reflected in that outlook.

[Monika Garg:]

Got it. And then I think, David, you talked about during your commentary that GMV growth in the first half actually felt like mid-single-digit and then it recovered after that. Maybe walk to what happened that led to slowdown in growth.

[David Spitz:]

Yes. So I think as we – if you recall from Q4 2016, we saw some dynamics there, in particular, on Amazon as some of the first-party – at least our hypothesis that some of the first-party dynamics were encroaching on third party. And we just saw a fairly significant deceleration on Amazon. And so in response to that, we’ve been building a lot of capabilities to improve the value proposition for Amazon sellers, things like the Repricer, which we had launched in October of 2016. So it just got off the ground at that point, and we spent the bulk of 2017 working with sellers to build awareness and drive adoption of things like Repricer. We have other things like FBA optimization, dashboard and other things that are really focused on optimization as opposed to just automation. And I think that effort has really paid off on Amazon, and we just saw continuing throughout 2017 an improvement in GMV on Amazon, and so that’s good to see. And I think the partnership with eBay also helped. I think we worked much more closely with eBay than we have in the past on a variety of seller programs going throughout the year, and as I said in my prepared remarks, saw a gradual improvement in GMV, consistent with what eBay also recently reported on their call. So I think, for us, the things that we control are the product capabilities and the adoption of those capabilities by our customers. And as I said earlier, I think there’s still a lot of room there to expand that. So as I mentioned on the Repricer, it’s still a minority of our customers who could use it that are using it. And so when I talk about working with Beth on making sure that we drive adoption of these capabilities, it’s really about driving that kind of awareness and adoption because we just see the phenomenal results for customers that adopt those capabilities generally as opposed to those who don’t. So did that answer your question?

[Monika Garg:]

Yes, definitely. So then, in the second half, when you saw the growth in GMV, is it because of these new products which you just and other products?

[David Spitz:]

I think that’s a significant driver of it. Of course, our sales team also began to drive improved results. As I mentioned, 2017 was the first year of new sales bookings growth since 2014 and the best year that they’ve had since 2014. So certainly, that helps bring more volume onto the platform. But I think product improvements and new capabilities definitely drove – especially as I look at like Amazon same-store sales, which would not incorporate new customers, would just take into account existing customers, just saw some really nice some of our larger channels.

[Monika Garg:]

Got it. And then one question on drop-shipping. How – maybe just to update us how is that product doing. Thank you.

[David Spitz:]

Yes. So I mentioned in my remarks that through the end of the year, we had over a dozen retailers in our network and that we anticipate at least tripling that number this year. So I continue to be very pleased with the expansion of the retail network. And then what you’ll see us focusing on this year is having built out a critical mass of retailers on the retail side working to drive supplier adoption. So we already have a number of customers that were using us for marketplace capabilities that are now using us for drop-ship as well. But we see now the opportunity to go out more aggressively and court the supplier side of the market now that we’ve got the retail side, we believe sufficiently built up to create an appropriate network for those guys.

[Monika Garg:]

Got it. Thank you so much.

[David Spitz:]

Thanks, Monika.

[Operator:]

Thank you. Our next question comes from the line of Matt Pfau of William Blair. Your line is open.

[Matt Pfau:]

Hey, guys thanks for taking my questions. First just wanted to touch on the Amazon performance, GMV performance in the quarter. And if I recall back to last year, I think partly, the difficulty was – that you cited was Amazon putting more emphasis on some of its 1P products versus 3P, and that was partly impacting you. So I guess in the fourth quarter of this year, did you see a change in behavior from Amazon? Or was it similar behavior and then some of that was just maybe made up by an easier comp plus the sale of some of the additional functionality that you’re offering?

[David Spitz:]

Yes, great question. I think we saw a little bit of it, but you’re right, number one, we – the comp was easier just based on the 2016 results. And number two, I think what we learned out of that experience is we really had to help sellers optimize on an increasingly competitive platform. So I think the combination of things, but I would point to probably product improvement, first; and lapping the comparables, second. And I – the reason I say that is I look at – internally, I look at same-store sales as a key indicator of how well we’re helping our sellers compete. And I use that example in the call of 35% same-store sales growth rate for those using the Repricer. We have similar kinds of success stories for those using our advertising programs on Amazon that I didn’t highlight in the call. But really emphasizing both the – those capabilities, driving the awareness and driving adoption across our base, I think, kind of had a meaningful impact in 2017 leading to the holidays.

[Matt Pfau:]

Got it. And then I want to hit on one of your goals for 2018 here with further building out the indirect channel. So if I recall, I think the initial interest you were seeing for the indirect channel or the initial partners were on the logistics side. Have you seen interest from other types of parties that you can add to that ecosystem?

[David Spitz:]

Yes, great point. And I think what I would preface is by saying a lot of companies of our size already drive – it’s not driving 20%, maybe 40% of their revenues through channel. And this is something that ChannelAdvisor hasn’t done historically. So I think there’s a huge amount of opportunity there for us. And you’re right, it has been – the early innings have really been driven by logistics. The companies that are out there that make a living moving packages see ChannelAdvisor as a strategic partner who can help their customers connect to more demand channels and ultimately drive more shipping volume. And there’s a real symbiotic opportunity there because by getting closer to and more natively integrated with a logistic player, we’re able to provide a lot more optimizations on a fairly significant cost center for sellers, right? So if we can help our sellers improve their cost efficiency on shipping or their time for delivery, those are all tangible benefits to the customers. I think it’s a win all the way around for everybody. There are other areas of interest outside of logistics, but I would say right now, just because we really view that as a strategic pillar of the business, that’s really getting the bulk of our attention.

[Matt Pfau:]

Got it. And last one for me, I just wanted to hit on brands and some of the comments that you made. I guess, where are we at in terms of adoption by brands? It’s something that’s been talked about for a while in terms of them selling more through marketplaces and taking more control over their direct – more of a direct distribution role. But maybe it’s played out slower than some have anticipated. So where do you think we are in terms of seeing a tipping point with brands finally feeling like maybe that they need to have more control over their presence in marketplaces? And does any sort of the turmoil in terms of store closings with some of the larger bricks-and-mortar retailers impact or accelerate that brands taking more control over their distribution.

[David Spitz:]

Yes. Yes, good question. We’ve always seen this as a multiyear, kind of secular trend or dynamic. I suspect it will take several more years for the majority of brands to really kind of operationalize the strategy that they need to have. I spent a lot of time last year traveling and speaking to brands about e-commerce strategy. And what I would say is that all of them believe that they need an e-commerce strategy. And the flip side of that is they’re all at various points on that spectrum from well-oiled e-commerce machines to mean – or not even sure what their strategy should be yet. So if there is a tipping point, it might have already happened. When Nike announced that they were going to start selling on Amazon last – I think it was last June or July, I think when a brand as venerable as Nike makes a move like that, I think pretty much everybody else has to sit up and notice and realize that the world has changed. So – but I just think it will take time. I mean, there’s all sorts of channel conflict, questions the brands have to deal with, with their traditional retail network that may still be driving 90% plus of their business, their supply chain questions. A lot of brands are used to shipping pallets to retailers, not packages to individual consumers, so logistics is a big question in there. So I don’t think it will happen overnight, but I think the trend is inevitable.

[Matt Pfau:]

Perfect. Thanks for taking the questions guys.

[Operator:]

And our next question is from the line of Aaron Kessler of Raymond James. Your line is open.

[Aaron Kessler:]

Great. A couple of questions, guys. First, just in terms of what products maybe that customers were asking for, obviously, Repricer has seen good success. Anything else that – or maybe you don’t have to, that customers were asking for? Or where else have you seen good traction? And secondly, eBay talked more about kind of sponsor links getting more tractions. Any commentary on there, what you’re seeing for demand for their sponsor link feature as well?

[David Spitz:]

Thanks, Aaron. Yes, so from a product perspective, we have – we had a significant focus on what we call optimization and expansion over the last year. So we’re very good historically at the automation piece, right? Helping you list large volumes of SKUs and keeping that – all that information updated reliably, et cetera. But optimization and expansion have been important themes for us even more so than automation. So what I mean by that is things like repricing, inventory forecasting, fulfillment optimization, all things that help you as a seller operate better and more competitively or more efficiently. The expansion side of the equation is really about expanding the number of channels that we support. I didn’t report the specific numbers here, but we had really good success last year expanding the number of marketplaces we support through our Access program, and we continue to see strong demand from that – for that from new partners, new demand partners all around the world that want access to our network of suppliers and want to integrate into us. And of course, if you’re a seller, that represents incremental value because it’s another avenue to offer your products for sale. But what I would say more broadly, though, Aaron, is we’ve been around since 2001 and our product is incredibly powerful. I mean, if you talk to customers who’ve been with us for a long time, a lot of them have built businesses on ChannelAdvisor, it’s got a lot of capability. But it’s also become complex. It’s got a lot of configurability, a lot of power settings. And one of the things that’s really a key priority for us this year is ease of use, especially for new customers. So I’m going to be working closely with the product team to take all of this power in our platform but simplify how it’s presented and make it easier for customers to get going because we think that’s – as I talked about some of those optimization features, one of the challenges that we’ve seen, as I mentioned, the minority of our customers are using Repricer. So there’s just kind of an ongoing challenge of awareness and adoption that we think we can tackle in part by making those capabilities easier to use and navigate in the product. So that’s not something specifically the customers are asking for, but we believe, strategically, it’s really important to make sure that over the long term, we have as much of our customers using all of the capabilities as our platform offers. And then on eBay sponsored listings, yes, we continue to believe just fundamentally that all marketplaces will have, if they don’t already have, an advertising component. We think it’s becoming table stakes, and we see that in our data. We see demonstrably higher performance from customers who use advertising both on Amazon and on eBay compared to those who don’t. And so that is, just like Repricer, another example of something that more customers should be adopting, and we’re working hard to make sure that more of them are adopting it. But yes, we see that as a key element of eBay’s program, and it’s something we are very supported of and we think it’s good for sellers.

[Aaron Kessler:]

Got it. Great, thank you.

[Operator:]

Thank you. And our next question is from the line of Colin Sebastian of Robert W. Baird. Your line is open.

[Ben Gaither:]

It’s Ben for Colin. Just two quick ones. First off, are you guys seeing anything specifically on the competitive front, either on pricing or feature set perspective, that might be impacting the ability to gain share more quickly? And then secondly, with respect to the marketplace, you called out that declined significantly during the holiday. Do you guys have any line of sight on how that started the trend this year or if the Q4 trends persisted?

[David Spitz:]

Yes. Thanks, Ben. So no change really on the competitive landscape. I think our go-to-market strategy, our marketing investments, our sales investments and the changes we made last year are really all oriented around being more effective and efficient at cracking open broader market opportunities and bringing them to the funnel and closing them. And I think we’ve seen some really good progress, and I’m very pleased with the momentum and I expect that, that momentum will continue this year. So I don’t – it’s not really a competitive thing. In fact – the fact that new bookings – new sales bookings increased last year compared to the last couple of years, I think, is indicative of those changes starting to take hold. Onto your question about marketplaces, so we did see some of the trend on that one marketplace continuing to early January, but we then saw an improvement during the month of January. So that deceleration in GMV on that one marketplace did persist through the holidays. It did bleed over into early January, but then we saw it improve throughout the month of January.

[Ben Gaither:]

Got it. Thank you.

[Operator:]

Our next question is from the line of David Gearhart of First Analysis. Your line is open.

[David Gearhart:]

Good afternoon. My first question is you bought HubLogix in May of 2017, and I recall that you expected a de minimis contribution in 2017. Just wondering if you can give us some sense of what you’re expecting around the HubLogix capabilities in 2018 and what’s baked in the guidance.

[David Spitz:]

Yes, absolutely. Great question. So that acquisition has gone exactly as we wanted it to and expected it to and planned for it to go. It, as expected, did not have a material impact from a revenue perspective. We really were looking at the team and the technology and had some – they had some good initial customer traction. But our plan all along and our plan in 2018 continues to be integrating that core platform into our platform. So HubLogix will be natively integrated inside of ChannelAdvisor, will be part of our overall value proposition. And so we’re not breaking out any particular revenue expectations for that, as you can probably guess. But we already can cite a number of examples where it’s helped us close deals that we might have not been able to close without it. So I’ve been pleased with it, and I expect it will continue to create value for us this year.

[David Gearhart:]

Okay. And then just going back to the advertising on marketplaces, since that’s part of the digital marketing side of the shop and that obviously has been declined, just wondering if you have any line of sight when you think that will be material enough to offset some of the downward pressure on digital marketing.

[David Spitz:]

Yes, great question. I’m not prepared yet to say that that’s going to be a flat revenue digital marketing overall in 2018. We did see some improving dynamics in terms of bookings and churn during 2017 that give me some optimism that we’re moving in the right direction. We’ve certainly seen some good success with advertising on marketplaces, especially Amazon advertising. It’s too early to call, though, right? I do expect it will help offset some of the traditional digital marketing decline that we’ve seen, but it’s too early to say it will be enough to make that a neutral to positive line for us this year.

[David Gearhart:]

Okay. And then last one for me. It’s more of a housekeeping question, but just wanted to ask a little bit more about the customer restatement for Q3. Do we have to restate? Or is there a restated number for Q2? Or why, in particular, was it pulled out of Q3, the customer count?

[Mark Cook:]

It was simply when we do some system works in Q4, this is Mark, by the way, and we found that they had actually been incorrectly stated into Q3. There was no impact prior to Q3 that we’re aware of based on that. We think, obviously, that we got that corrected going forward. So again, we had a decline of five in the fourth quarter, 35 for the full year, so it’s now accurately reflected. We just had to pull back what we had recorded in Q3.

[David Gearhart:]

Okay. Thanks for the color. That’s it for me.

[Operator:]

Thank you. And at this time, I’m showing no further questions. I’d like to turn the conference back over to Mr. David Spitz, CEO, for closing remarks.

[David Spitz:]

Great. Thank you, everyone. We look forward to speaking with you again soon and seeing some of you at Catalyst in April. Thank you.

[Operator:]

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