ChannelAdvisor Corporation
Q2 2016 Earnings Call Transcript

Published: 6 Aug 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q2 2016 Channel Advisor Earnings 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] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Garo Toomajanian, Investor Relations. Please go ahead.

[Garo Toomajanian:]

Thank you. Good afternoon, and welcome to ChannelAdvisor’s conference call for the second quarter of 2016. My name is Garo Toomajanian, and with me on the call today is 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 to the on our second-quarter performance, as well as our outlook for the third quarter and full-year 2016. This press release can 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 risks, 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 for certain periods, one-time severance and related costs. The 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 our 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 color in the future. With that, let me turn the call over to David for his prepared remarks. David.

[David Spitz:]

Thank you, Garo. I’m pleased to report that our second-quarter revenue and adjusted EBITDA were above the high end of our guidance. Our performance in the quarter was driven by our ongoing shift towards larger customers, and our expanding relationships with existing customers. This helped us produce record average revenue per customer of $37,000 on a trailing 12-month basis, an increase of 16% from a year ago. Additionally, all attrition among customers with committed annual revenue of less than $15,000 continued through this shift. During the second quarter, that attrition was almost completely offset by new customers with committed annual revenue above $15,000. As a result, our net customer decline during the second quarter was the lowest sequential decline it has been in the year, and while we have more work to do, we believe our customer count represents good progress against our strategy to deliver long-term sustainable and profitable growth. I’m especially pleased with the continued growth of customers driving in excess of $100,000 in committed annual revenue. As of June 30, 2016, we had 133 customers whose committed annual revenue to us exceeded $100,000, up from 88-plus customers, as of June 30, 2015, an increase of 51%. Even more impressive, revenue from customers with over $100,000 in committed annual revenue increased 54% as of June 30, 2016, compared to the year-ago period. Thus, although we believe our overall revenue growth remains below our longer-term potential, we are clearly making progress in our most strategic and profitable tiers of customers, which we also believe positions us well for future strong growth and profitability. In terms of our regional revenue performance for the second quarter, we enjoyed strong growth in North America, offset by slower growth in certain international markets, compared to a year ago. China, while not material to our total revenue, experienced very strong revenue growth in the second quarter compared to a year ago. While our fastest-growing international region in the second quarter, its growth was partially offset by modest revenue declines in EMEA and Australia. Although some of this is attributable to currency fluctuations, it is worth noting that it was our EMEA and Australia regions that were most impacted from our restructuring a year ago, when we rationalized headcount and sales capacity relative to revenue. I believe we are now seeing the full impact of those changes in those respective regions. With that realignment now a year behind us, I expect both regions will stabilize and will begin contributing to revenue growth again in the coming quarters. While the addition of larger new customers, like Fila, Reynolds Consumer and Cornerstone Brands, is one way that our average customer size is increasing. Another important factor is the migration of existing customers from lower tiers to higher tiers, as we share in the success we help drive for our customers. This combination of healthy gross customer addition and increased penetration of existing customers, coupled with retention rates that are much higher for larger customers in this segment, gives us confidence that our strategy of focusing on larger customers with improved unit economics continues to be the right strategy. The improving overall health of our customer base is also evidenced by 27% growth in GMV during the quarter, compared to the second-quarter 2015. Reconciling this to our overall revenue growth, it’s important to note that as we continue to move upmarket, we expect lower effective take rates from larger customers. This naturally implies that near-term revenue growth is likely to lag GMV growth. We expect this lag to be temporary in nature, however, and that GMV and revenue growth rates will reconverge over time as we reach a new balance of customer sizes. Consistent with past practice, we intend to provide more detail on annual bookings in our fourth-quarter call, but our increased bookings in the second quarter, both year-over-year and sequentially, reflect the momentum we are seeing across our business. Consequently, if we continue to execute in the back half of 2016, we believe an inflection in revenue growth is possible sometime in 2017. I hope we’ve been clear for several quarters that we anticipated the deceleration in revenue growth that we are now seeing. This was the price of shifting our customer base and making substantial improvements to our profitability in order to ensure the long-term sustainability of our business. While I’m not yet prepared to say that we are done with our transition just yet, I want to assure all of you, as our fellow shareowners, that our primary focus remains driving improved revenue growth, while continuing to cultivate the financially disciplined profile we worked so hard to achieve over the last four quarters. Consistent with that focus, our pipeline of branded manufacturers continues to grow rapidly, with strong interest in both our Where to Buy solution, as well as our recently announced Product Intelligence offering. As the brand focused sales team that we created at the beginning of 2016 enters the back half of the year, we expect to see an acceleration of wins in the brand segment. Customer interest in Walmart marketplace, which Walmart announced at our Catalyst Show in April, also continues to be very strong, with hundreds of new and existing sellers, either now live or in the pipeline to go live on Walmart.com in advance of the holidays. While it would be premature to try to project the holiday performance of this channel, or the impact on our financial performance, we remain very bullish on Walmart’s capacity to drive substantial sales growth for these sellers. In summary, our strategy is clear, it is yielding results, and we are firmly committed to executing it as rapidly as possible. Now, let me turn the call over to Mark for more details on our financial performance.

[Mark Cook:]

Thanks, David. I will now provide additional color on our second-quarter financial performance and our guidance for the third quarter and full-year 2016. Revenue in the second quarter was $27.1 million, an increase of 12% or 13% in constant currencies over second-quarter 2015. As in the first quarter, we saw strong variable subscription revenue, which grew 16% from a year ago to $6.1 million in the second quarter, or 23% of total revenue. This is the third quarter in a row where we’ve seen strong growth in variable revenue. Pick subscription revenue was approximately $21 million, an increase of 11% from Q2 a year ago, and was 77% of total revenue. Revenue from outside the United States was approximately 22% of our total revenue in the second quarter, a decrease from 25% of total revenue in the same quarter a year ago. Second-quarter revenue from outside the United States increased slightly less than 2% year-over-year. We ended the quarter with 2,878 customers, down to only three, as David mentioned, from the end of the first quarter of 2016, representing our smallest sequential decrease in net customers in the year. Now, let’s look at this net decrease in a little more detail. During the second quarter, 86 net customers with committed annual revenue of less than $15,000 were terminated. We added 88 net new customers with committed annual revenue of greater than $15,000. As David mentioned earlier, we saw a 51% increase in the number of customers with better than $100,000 of committed annual revenue, compared to the same time last year. Among those, 10 customers were existing customers who migrated from lower bands within this into this band during the second quarter. The total committed annual revenue for the same customer category has increased 54% since June 30, 2015. We believe this is a good indication of our progress in the shift toward larger customers and increase in deal size. 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 that 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, operating expenses, operating loss and for adjusted EBITDA. We also provided a GAAP to non-GAAP reconciliation schedule on our website, which can be accessed on our Investor Relations section on our website at IRchanneladvisor.com. In the second-quarter 2016 gross profit increased 14% to $20.6 million, from $18.1 million a year ago. As a result, our gross margin expanded 120 basis points to 75.9%, primarily due to strong growth and higher margin of variable subscription revenue. Operating expenses of $23.4 million from the second quarter of 2016 were up 13% from $20.7 million a year a go. Operating expenses in the second quarter included costs related to our two Catalyst conferences, and therefore we expect operating expenses to be relatively flat in Q3, while we continue to invest in our long-term growth. Our operating loss was $2.8 million in the second quarter, in line with a loss of about $2.7 million a year ago. As a result, our operating margin for Q2 2016 includes about 60 basis points to negative 10.4%, compared to negative 11% a year ago. The combination of revenue growth and increase in gross margins nearly offset increased operating expenses to produce an adjusted EBITDA loss of $871,000 for the second quarter of 2016, ahead of our guidance. This was due to our revenue upside and continued expense management. This also compares to an adjusted EBITDA loss of $444,000 for the second quarter a year ago. I should also note that despite our adjusted EBITDA loss for the quarter, which we anticipated, our adjusted EBITDA was above $6 million for the trailing 12 months, ended June 30th, 2016. Non-GAAP net loss was $2.8 million, and compared to a non-GAAP net loss of $2.6 million for the second quarter in 2015. Turning to our balance sheet, our cash position strengthened during the quarter, ending at $62.4 million in cash and cash equivalents, as of June 30th, 2016, for an increase of $700,000 from the end of the first quarter. This would be primarily due to positive operating cash flows of $3.4 million in the second quarter offset by tax [indiscernible] payments related to share-based compensation. While we don’t regularly comment on deferred revenues, I did want to highlight that changes in quarterly deferred revenue are not necessarily representative of the bookings trends, however, I will point out, as David mentioned, bookings in the second quarter increased both year-over-year and from the first quarter. As such, with continued execution, we believe we could see an inflection on that new growth at some point in 2017. Now, I will turn to guidance. Our continued success in the market as well is our shift toward larger customers provides us with incremental confidence and reiterating our prior annual revenue guidance. While we have not seen the Brexit vote in June have meaningful impact on our customers in the UK, but with 10% to 15% of our business in British pound sterling, we do anticipate foreign currency fluctuation to be a headwind in the third and fourth quarter of this year. Nonetheless, we continue to focus on driving top-line growth while maintaining at least a breakeven trended adjusted EBITDA on a trailing 12-month basis. In terms of our outlook for the third quarter of 2016, we are anticipating revenue of $27 million to $27.4 million, representing growth of 11% to 12% from the same year-ago quarter. This includes a currency headwind impact of $300,000 to $400,000, or about 150 basis points of growth in that quarter. We intend to continues to strategically invest in the business, primarily in areas that can support our long-term growth, including key brand-focused sales reps and account managers. With that in mind, in the third-quarter 2016, we expect an adjusted EBITDA loss of between $1.5 million and $500,000. Again, a loss between $1.5 million and a loss of $500,000. For the full-year 2016, we are maintaining our revenue guidance in the range of $112 million to $113.5 million. This represents revenue growth of 11% to 13% from 2015 and includes the negative impact of a foreign currency exchange headwind of about $800,000 to $900,000, or a reduction of approximately 150 basis points in gross for the second half of 2016. From a profitability perspective, we are increasing the midpoint of our expectations and anticipate an adjusted EBITDA of between a positive $1.5 million and $3 million for the year. This reflects our goal of continuing to invest in our business while generating at least breakeven adjusted EBITDA on a trailing 12-month basis. In summary, we are pleased with our financial results for the second quarter. We believe our second-quarter results are reflective of our continued focus on large customers and operational improvements. This was demonstrated by a continued increase Graebel [ph] subscription revenue, further growth in the average revenue per customer and confidence in our outlook for the full year. Additionally, our second-quarter performance makes us optimistic that we’re on the path to returning to sustainable increase in revenue growth and improving profitability in the years ahead. With that, operator, we would like to now open the call for questions.

[Operator:]

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

[Brad Reback:]

Thanks very much. David, maybe we can dig a little deeper into the revenue growth expectations for the back half and the revenue growth in the current quarter. You’ve been on the new strategy for a few quarters now. The ARPU is really strong, the customer decline is as modest as it’s been since you’ve undertaken this strategy, but the revenue growth was far below where it’s been. Why did that all hit this quarter?

[David Spitz:]

I’m sorry, Brad, I didn’t hear that.

[Brad Reback:]

Why was the revenue growth so much lower this quarter?

[David Spitz:]

As you know, in a model like ours, revenue is a bit of a lightning indicator, and the changes that we made a year ago, in particular internationally, as I pointed out in my prepared remarks, we had disproportionate headcount changes in the UK and in Australia last year, which had an impact on our bookings capacity there. We’ve also been typing up, as you know, a lot of our deal qualification criteria to improve the quality of customers coming in the pipeline. And I think those two things combined just created an expected headwind in terms of sales capacity as we went through the last few quarters, and revenue follows. And that’s why over the last few quarters I’ve tried to be clear that we would expect this outcome to happen before we see any kind of reacceleration.

[Brad Reback:]

And how many quarters do you expect to lag between your bookings growth and your revenue growth? Give us a sense of when those cash back up in 2017.

[David Spitz:]

What we said in our remarks is that we would expect an inflection at some point in 2017, it’s hard to pin that more precisely at this point. We’re obviously not guiding anything in 2017 at this particular juncture, and obviously it depends to a certain extent on our performance in the back half of the year, in particular from a sales perspective. So, all those reasons give us confidence that we will see an inflection sometime in 2017, but I think it’s a little bit too early to say anything with more precision than that.

[Brad Reback:]

Great, thanks very much.

[Operator:]

Our next question is from Monika Garg from Pacific Securities.

[Monika Garg:]

Thanks for taking my question. David, you have probably seen the news, going by Wall Street that Walmart could be buying Jet. If that happens, do you see any impact on your Business?

[David Spitz:]

We are obviously not in a position to speculate on market rumors. I think what I would say is that we have been very good and strong partners for both Walmart and for Jet. I believe they would say the same things about us, and I think regardless of how those potential discussions evolve or don’t evolve, I wouldn’t expect it to have a meaningful impact on us. I think we would continue to work very well with both, just because of the number of sellers and the amount of volume that we drive.

[Monika Garg:]

Then, you know, the product intelligence solution, which you talked about at the Analyst event, can you talk about the feedback you have received regarding the solution and the takeaway from the customers?

[David Spitz:]

Yes. As I indicated, we do have strong interest in it. We have signed a number of deals for product intelligence and it’s exciting, because it addresses one of the key challenges that brands have today in terms of really understanding how their products are being merchandised, priced and displayed and syndicated around the Internet, and it is a challenge a lot of brands have in terms of understanding that. We obviously expect to continue iterating on the solution and to expand its capabilities and create more value for customers, but I think for the product we just released a few months ago, the feedback has been really strong.

[Monika Garg:]

Just a last one, Mercent, which was acquired by CommerceHub, and CommerceHub went public recently, do you see them in the market or see any increased competition from them? Thanks a lot.

[David Spitz:]

No. I would say the opposite. I think Mercent being bought by CommerceHub was actually a very good event for us. We ended up acquiring a lot of customers following that deal, because it took away some of the artificially low pricing that Mercent was putting out in the market, and when that went away, it was a head-to-head comparison of capabilities, we win very frequently and continue to win. So, from my perspective it has been a positive thing, and I don’t see it as a meaningful threat at this point.

[Monika Garg:]

Thank you so much.

[Operator:]

Our next question is from Colin Sebastian from Robert W. Baird.

[Unidentified Analyst:]

It is actually Ben on for Colin. A couple of questions, one around the Walmart contribution, how much of that integration was a driver of the incremental growth this quarter? Then you saw some of the other marketplaces put up pretty good results, like Amazon and eBay, and it seems that your guys’ blended growth is trailing, particularly on the Amazon side. On some of that, what are the dynamics going on there that we should be thinking about?

[David Spitz:]

We don’t really break out individual marketplace contributions from in terms of GMV revenue. I would say Walmart is still early in the sense that, what I said is that we’ve got hundreds of sellers either in the pipeline or launched, or in the process of being launched or interested in being launched, so I think that is still the very front end of how the sellers are all going to drive volume and eventually revenue growth, so I think it is a little bit premature to, as I said in my comments, point to the financial impact from that particular channel. More broadly, I did remark that GMV overall for us grew 27% in the quarter, which I think is a very strong growth rate, and hopefully I was clear as to why I think GMV and revenue growth are lacking a little bit. My view on Amazon, and I will have to be qualitative about this, but my view on Amazon is that Amazon continues to grow its seller base fairly rapidly, and I think for individual sellers in particular categories, it is incrementally more difficult to drive as strong same-store sales growth as they might have had a year ago or two years ago. We saw that phenomenon on Prime Day where, I think in our data as well as anecdotal evidence that I’ve seen out there in the market, sellers who participated in both years’ Prime Day did not see particularly strong growth, but obviously Amazon overall saw strong growth, which leads me to conclude that new sellers are driving a lot of that growth, and obviously we look to acquire those sellers as well. But I would point to our overall GMV growth that I mentioned in my remarks at 27% as still a healthy growth rate.

[Unidentified Analyst:]

Thank you very much.

[Operator:]

Our next question comes from Justin Furby from William Blair & Co.

[Justin Furby:]

Thanks, guys. A couple questions, Mark, I wanted to go back to the comment around bookings you made, I guess I missed it, but you said something about what you saw in Q2 and how it compared to Q1 in terms of growth, so can you just clarify that in terms of what you saw in the new business front and how it compared to Q1? I guess, David, you talked about an inflection as early as next year, can you give a little more color in terms of what that might look like? Does that mean 15% growth? Define inflection or maybe put a little more color behind it. And I’ve got one more, thanks.

[Mark Cook:]

I can’t provide a lot more detail in terms of the bookings growth from the quarters, but we felt like it’s improving. Obviously in Q4 we can provide a lot more detail on bookings, but if you look back to the comments we made also regarding the transition of our customer base, I think that is indicative of the type of bookings we are getting, meaning we are moving into that larger category and smaller customers are continuing to tread a little bit. I can’t provide a lot more detail, but hopefully that will be helpful.

[David Spitz:]

On your question around inflection, I think what I mean by that is that we would see an uptick in revenue growth from one period to the next. And again, we are not in a position right now to provide any quantitative guidance for 2017, but that’s what I mean by that.

[Justin Furby:]

Okay, and then Mark, maybe you mentioned this, I think I could probably back into it if I was quick enough on my feet, but did the U.S. business grow, did it accelerate, decelerate, how did it do revenue growth year over year in Q2 versus Q1?

[Mark Cook:]

We weren’t very specific in terms of– We provided the percentage of revenue growth for our Business outside the U.S., which was a little bit slower. I think if you look at our total growth in the year, you could probably back into it, we weren’t very specific.

[Justin Furby:]

I guess what I’m wondering and struggling with is, if you look at it from an end market standpoint, you have got a lot of really good things going on. eBay seems to have a pulse again, Amazon put up really big numbers. Walmart seems like it is becoming more meaningful. Going back to Brad’s question on the deceleration, I guess I just struggle with why this quarter that would happen amidst what seems to be very good positives that you are seeing, and I get the spread in terms of GMV and revenue growth, but as your customers get bigger and bigger, don’t you always face that spread issue in terms of having to grow against that?

[Mark Cook:]

[Indiscernible] have been fairly consistent and continue to use the word transition, but basically as we peel off these smaller customers, we’re – a little bit of revenue headwind. Adding on the newer and larger customers as you recall, we added to our brand and [indiscernible] back and forth in the first quarter, take a while for them to ramp, they’re adding these customers on and going back to bookings, even though they may be quality bookings, those bookings don’t translate to revenue immediately. So you have got a little bit of a headwind from the transition to the smaller customer, and then adding these larger customers on, it’s a layered type approach, so it takes a little time to offset.

[David Spitz:]

And Justin, this is why I disclosed that 27% growth in GMV, which is more of an apples-to-apples comparison to results you might see from eBay or Amazon, because that correlates more closely to their revenue. To give you an example, as we burn off smaller eBay sellers, you can see an increase in eBay’s GMV in our platform and actually see a modest downtick in eBay revenue, because the take rate of the sellers that are left is effectively lower. It’s not our intention every quarter to continue to turn the dials and restrict the pipeline at the low end more and more and try to lock it up forever. Our view is we have made a lot of changes over the last year, we don’t intend to make any particular additional changes to further strain the bottom end of the pipeline, because I think we have done a lot of the things that we need to do, so that is why I feel like over time, it’s not going to be a forever thing. Once we’ve downed the corner and the balance and proportion of customer sizes stabilizes, that’s when I would expect GMV to start to reconverge. Does that make sense?

[Justin Furby:]

That’s helpful. Thanks, guys, I appreciate it.

[Operator:]

Our next question is from Brian Peterson from Raymond James.

[Brian Peterson:]

Thanks for taking the questions. I wanted to follow up on the smaller customers in the churn dynamic. Where are we through that process? I know you’ve given some stats before, what percent of the customer base, or the revenue base, is below the $15,000 in revenue?

[Mark Cook:]

I think you could go back and look at – we didn’t provide any specific stats this quarter, but go back and look at our presentations in Q4 and I think from our Catalyst Conference, I think we at one point said that our revenue base in the fourth quarter, as an example, for these smaller customers that bottomed out only configured about 6% or so. I don’t remember the exact number of our total revenue for that quarter, and then our top 100 I think it was in excess of 25% or something like that, but all the information is actually posted on our website to give you a feel for the trend in those quartiles of our customer base.

[David Spitz:]

Brian, one thing I would add is that while we didn’t disclose particular churn metrics in this quarter, what I can share is that it improved sequentially from 2014 to 2015, and year to date, at least thus far, it continues that trend of improving. And we see particular improvement in first-year churn of revenue retention, which tells me that the deal qualification, some of the payment terms, all of the things that we’ve done in terms of trying to focus on higher-quality customers is having a positive impact there.

[Brian Peterson:]

One follow-up, you mentioned that some of the changes you made were in Europe and Australia, I’m just curious, if some of the impact there may be macro driven or if there are any productivity stats that you can give that give you confidence that maybe the smaller go-to market base is really going to improve as we step up to the year? Thank you.

[David Spitz:]

The changes we made internationally were really based on revenue to headcount ratios and rationalizing that last year, as well as historical rep productivity and how that compares to our domestic market. We have not at this point seen what I would characterize as any kind of macro-driven headwinds. Businesses, for example, deciding that they want to hold off on expanding e-commerce because of uncertainty, and your political uncertainty or uncertainty around things like Brexit, our comment in terms of how it affects our outlook is really based on currency. We, I think, have always seen international rep productivity be somewhat lower than what we see in the U.S. I think that is not unusual for an American software company, but we expect and continue to invest in those areas. For example, we have now got a new managing director in Australia to take that team and start to drive renewed revenue growth. That really was the primary driver of the revenue deceleration for us.

[Brian Peterson:]

Thanks, David.

[Operator:]

Our next question is from Craig Nankervis from First Analysts.

[Craig Nankervis:]

Thanks, good afternoon, I’m not sure if I’m missing something, but is there a reason that the effect of your moves in the UK and Australia would have been gradual and sort of eased in, rather than seeming to be more a one-zero, more sudden in their impact? Can you help me understand why that wasn’t necessarily the case?

[David Spitz:]

Again, this is not something we’ve quantified. One thing I will mention about the brand business, for example, which we acquired and which was UK-based and had a few UK customers is that you do tend to see a little bit more lumpiness in deferred revenue in our brands business around when customers get launched, for example. I believe we saw a little bit of a tougher comp in Q2 in our UK revenue because of some deferred revenue release last year that wasn’t repeated this year. Again, we didn’t quantify how much, but that was certainly a contributor. I don’t say that because we think it is a real material driver of our Business either way, but I’m just pointing out that relatively small changes in numbers can have a couple-point impact on growth rates, as you know, and that was definitely one factor.

[Craig Nankervis:]

And just out of curiosity, your Access Product, can you update us on what is happening there and what your outlook for that is to make a difference in your business potential for that?

[David Spitz:]

Yes, Craig, that continues to be a very effective capability for us to attract and acquire additional channels for our customers. Obviously, there’s kind of an 80/20 rule there, if you look at the difference between, for example, a Walmart and a Jet or someone like Awish [ph] versus a very niche or geographically-scoped channel. I think for us at this stage I would characterize it as incremental in terms of helping us close deals with customers who have a particular desire and need to sell on a particular channel.

[Craig Nankervis:]

Maybe a little bit on the margin is going to help, that’s sort of what I’m hearing said.

[David Spitz:]

Yes, I guess it depends on what you mean by on the margin. I think it is an incrementally helpful capability, and I think as we continue to add channels through that program, I think it only helps us.

[Craig Nankervis:]

Thank you.

[David Spitz:]

Thanks, Craig.

[Operator:]

At this time, I’m showing no further questions. I would now like to turn the call back over to David Spitz for any closing remarks.

[David Spitz:]

Great. Thank you, everyone, for joining our call, and we look forward to speaking with you in the near future. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program, and you may now disconnect.