ChannelAdvisor Corporation
Q4 2016 Earnings Call Transcript

Published: 10 Feb 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to ChannelAdvisor Fourth Quarter 2016 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 follow at that time. [Operator Instructions] As a reminder, this is being recorded. I would now like to introduce your host for today's conference, Mr. Garo Toomajanian with Investor Relations. Sir, you may begin.

[Garo Toomajanian:]

Thank you. Good afternoon, and welcome to ChannelAdvisor’s conference call for the fourth quarter and full year 2016. 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 and full year performance, as well as our outlook for the first 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 for certain periods, one-time severance and related costs. 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 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. Our fourth quarter of $31.8 million was within our guidance range. Fixed subscription revenue of $22.6 million, grew over a 11% compared to the same period last year, although variable revenue growth slowed to 1% due to a particularly tough comp from the fourth quarter of 2015, as well as the deceleration we saw in year-over-year Amazon GMV growth during the holiday period. In general, our customers continue to perform well on Amazon's marketplace, as illustrated by double-digit GMV growth during the fourth quarter on Amazon. So we believe Amazon's extended promotional period during the holidays, including their Black Friday deals store, which opened November 1 shifted a portion of demand from third-party marketplace products to heavily promoted products that Amazon sells first party, where Amazon directly controlled pricing. In fact, Amazon itself reported its first quarterly sequential decline in several years in the proportion of unit volume that is third party in the fourth quarter. We believe this is primarily a holiday phenomenon and a consequence of what was anecdotally and unusually price competitive holiday season. Partially offsetting the deceleration in the Amazon GMV growth, was customer adoption of our algorithmic repricer on Amazon. I will speak about this technology more in a moment. But customers who adopted it saw very strong growth during the holiday period on Amazon compared to those who did not, supporting our view that aggressive pricing promotion was a dominant theme of this past holiday season. Further helping offset lower Amazon growth in quarter is very strong performance by the Walmart marketplace, which I'll discuss in more detail in a moment. For the full year 2016 revenues grew 13% or 15% in constant currency to $113.2 million and GMV grew 19% to $8.1 billion, reflecting the value we provide in helping our customers grow in competitive e-commerce landscape. Considering the substantial currently headwinds we encountered in 2016, amounting to revenue impact more than $2 million for the year, I was very pleased with our performance for the year. From a product perspective in 2016 compared to 2015, we saw 16% revenue growth from market places operating and 21% growth from our other solutions, which includes our products for brand such as Where to Buy and Product Intelligence. Strong revenue growth in these areas was offset by a 4% decline in revenue for our digital marketing solution. Digital marketing remains a drag on revenue growth, as our customer base for this product primarily comprises larger retailers who as I class are undergoing significant disruption, such as department stores and traditional brick-and-mortar retailers. That said, despite the lack of that we are seeing in digital marketing, we believe it contributes to the probability of our business and we also believe there is opportunity to leverage our platform to expand into new advertising channels, like Amazon marketing services, especially as our growing base of brand customers seek new opportunities to directly engage and influence online consumers. As to profitability in cash flow, we continue to make substantial progress. Our fourth quarter adjusted EBITDA of $5.2 million was significantly higher than our guidance, allowing us to deliver adjusted EBITDA for the full year of $7.4 million, a substantial improvement from the prior year. I was especially pleased with our full year operating cash flow, which increased to a $11.6 million, an improvement of over $13 million compared 2015. While we have not yet reached our full potential for revenue growth or profitability, our strong debt-free balance sheet and solid cash flows gives us a firm foundation to continue focusing on top line growth, while still making investments in long-term opportunities. Speaking of growth investments, we continue to enjoy strong results from our strategic partnership with Walmart, with GMV growth of 79% in the fourth quarter, compared to the same period in 2015. In less than two years, since Walmart launched its marketplace at our Annual Catalyst Conference, our GMV on Walmart has grown rapidly and in Q4 represented close to half the GMV we had on eBay, quite an accomplishment, and we expect to see continued strength in 2017. Walmart is becoming an important channel for sellers looking for new growth avenues and our platform provides them with what we believe is by far the best solution on the market for selling on Walmart marketplace. We also continue to innovate to make our customers more competitive. As I mentioned a few months ago, our recently introduced algorithmic repricer for Amazon has delivered a very strong initial results for customers who adopted it. We work hard to get as many customers as possible to leverage this powerful capability in advance of the holidays and for those who did they paid off handsomely. Customers used our new repricer, enjoy on average 70% more GMV per SKU than those with no using the repricer. This differentiated capability showcases our continued investment in making ChannelAdvisor a very competitive advantage for our customers by leveraging data and analytics at scale and it real-time. To give you a sense of the scale we're operating at, on Cyber Monday alone we handled over 100 million pricing events on Amazon on behalf of our customers, giving them a substantial strategic advantage. We also rolled out our repricer technology for the jet.com marketplace in Q4 and just a few days ago rolled it out for Walmart. We are working hard to convert many more of our customers this powerful new capability on as many channels as we can. If the result channels on these new channels come close to what we're seeing on Amazon, it will be a big win for our customers. We were thrilled to welcome several new world-class brands with clients in the fourth quarter, including Bissell, GlaxoSmithKline Consumer Healthcare and the Mizuno What ] continues to differentiate ChannelAdvisor in the market as our leading technology, a global presence and our ability to provide strategic thought leadership as major global brands like these navigate increasingly complex and fast moving landscape. Our strategy of focusing on larger, higher quality customers and improved unit economics has already yielded steady improvements in revenue retention over the last 18 months, especially in our marketplaces offering which historically has had higher concentration of smaller customers. Notably for marketplaces, churn actually fell from 2015 to 2016, not just on a percentage of revenue basis, but also on an absolute dollar basis, contributing to double-digit revenue growth and marks improvement, reflecting a higher-quality customer mix. We expect revenue retention to further improve in 2017. An expected consequence of this strategy of narrowing our focus to higher quality customers has been slower revenue and bookings growth. As we've noted, it takes time to replace smaller customers with larger ones, with longer sales cycles and for the new enterprise sales rep we hired in 2016 to reach full productivity. Consequently we have made the point for some time now we expect revenue growth to decline before it reaccelerates and this is a deed what we experienced in the fourth quarter. This is also reflected in our net bookings as a percentage of revenue slowing to 10% in 2016 and 15% in 2015. We believe our strategy of focusing on strong unit economics and quality customers is sound, as evidence by our dramatic improvements in efficiency over the past two years. In short, we've made a lot of changes in the last 18 months that of paid off. But we need to be executing more quickly and more aggressively against that strategy in order to accelerate our revenue growth to the levels I believe our business is capable of. To that end, I'm excited to announce that Paul Forte has joined our team as Chief Revenue Officer, succeeding Ryan Walsh. Paul brings significant experience running global sales organization at scale across multiple software verticals, including senior leadership roles at IBM and most recently Monster Worldwide. As a former company commander in the U.S. Army, his leadership will be instrumental in helping in ChannelAdvisor reach new levels of scale and I am thrilled to having joined our team. Those of you attending our Catalyst Conference will have an opportunity to meet Paul at our analyst meeting. A number of factors make us optimistic, that we will see an improvement in sales productivity 2017. In addition to new experience sales leadership, our sales team rents and tenured, our pipeline of quality prospects is strong, our value proposition is more compelling than ever and I expect a number of product investments we've been making to begin bearing fruit for us in the market. As such, we remain confident in our ability to drive improvements in revenue growth by the end of 2017 with continued improvements in 2018. Lastly, I would like to express my profound gratitude to Aris Buinevicius, our Co-Founder and Chief Technology Officer, who has decided to retire from the company after 16 years. Without Aris, there would be no ChannelAdvisor and his contributions over the years have been immeasurable. I do not expect any disruption to our product development plans stemming from Aris's retirement, as a personal friend and on behalf of everyone at ChannelAdvisor, I can tell you that he will be missed. As I reflect back on the past year, I'm proud of what we've accomplished and the team was assembled and most importantly the value we delivered to our customers. Looking to 2017, our best in class products are positioned to uniquely address what we believe are some of the exciting opportunities in e-commerce, our sales team is fired up to serve the substantial opportunity that we see in the industry. I'm also excited in anticipation of several new platform capabilities we're planning launch at Catalyst in just a few. As such, we're bullish on the future and look forward to strengthening our leadership in this incredibly dynamic industry. With that, I'll turn the call over to Mark for our financial updates. Mark?

[Mark Cook:]

Thanks, David. I will now provide additional detail on our 2016 fourth quarter financial performance and our guidance for the first quarter and full year 2017. Revenue in the fourth quarter was $31.8 million, an increase of 8% or 11% in constant currency over the fourth quarter of 2015. The British pound continued to move lower during the fourth quarter with a negative impact to revenue of approximately $1 million when compared to rates during Q4, 2015. Fixed subscription revenue of $22.6 million, increased to 11% from Q4 a year ago and was 71% of total revenue. Variable subscription revenue was $9.2 million or 29% of total revenue in the fourth quarter. Variable subscription revenue increased 63% from Q3 reflecting seasonal strength, but a modest 1% increase from a year ago, due in part to a very challenging compare given our exceptionally strong variable performance in the fourth quarter of last year and as David suggested earlier, Amazon's extended promotional period during the holidays and unusually heavier price competitive holiday season also contributed to the relatively flat variable year-over-year revenue performance. Revenue from outside the United States was approximately $6.6 million or 21% of our total revenue in the fourth quarter compared to 23% of total revenue in the same quarter a year ago, primarily due to currency exchange fluctuation. Now turning to the full fiscal year, revenue for 2016 grew to $113.2 million, an increase of 13% year-over-year and 15% in constant currency. 23% of our revenue for 2016 was from outside of United States, a decrease from 24% of revenue in 2015, primarily due to currency impact almost $3.3 million. Fixed subscription revenue for 2016 increased 13% to $86.1 million from $76.2 million a year ago and represents 76% of total revenue for 2016 consistent with the prior year. Variable subscription revenue $27.1 million increased a 11% from $24.4 million a year ago and represents 24% of total revenue. We ended the quarter with 2,875 customers, compared to 2,880 customers at the end of Q3, 2016 and 2,898 customers at the end of Q4, 2015, reflecting both the value we bring to customers and our focus on larger retailers and brands, average revenue per customer increased 14% or $39,339 on a trailing 12 month basis, compared to $34,513 a year ago. We believe we'll continue to see growth in this metric in 2017. Now continuing the discussion related to our customers, as David mentioned, we continue to see improving trends related to churn. In the fourth quarter, we added 35 net new customers with committed annual revenue of greater than $15,000 and we added a net of 188 such customers for the full year. In contrast, we terminated 40 net customers with committed annual revenue of rough brand $15,000 during the fourth quarter and 211 of such customers for the full year. 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 the shift toward drawing and acquiring larger customers and increasing deal size, the number of customers with over $100,000 of committed annual revenue was 143 at the end of the fourth quarter, an increase of 33% from a 108 a year ago. The committed annual revenue from those most customers increased 23% to $23 million at the end of the quarter from $19 million a year ago. Now, sharing some additional insight to our revenue by product as we did during our analyst day at Catalyst in 2016. Our marketplaces product solution which connects customers to third -party marketplace with the Amazon, eBay.com, [indiscernible] Sears, and Walmart had full-year 2016 revenue of $86.3 million, an increase of over 16% from 2015. Our marketplaces products represents 76% of our total 2016 revenues/. Digital marketing products, which connect customers to search engine and comparison shopping websites, such as Google, Microsoft's Bing and Nextag, and social channels, such as Facebook, Instagram and Pinterest had full-year 2016 revenue of $19.4 million compared to $20.2 million in 2015. If you recall, we shared during our annual meeting at Catalyst in April 2016, that our digital marketing revenue has been relatively flat over the years prior to 2016. While it has not contributed to our topline growth, we believe its revenue does contribute to or profitability. We believe this marketing will be complementary to our branded manufacturers solution set, expanding into new advertising channels - and our growing base of brand customers to directly engage and influence consumers online. As an example, not only do we enable third party marketplace sellers to advertise on Amazon about sponsoring products, we now have expanded that support to include first party brand advertising on Amazon. Other revenue includes our fastest growing products, our Where to Buy and Product Intelligence solution for branded manufacturers, as well as partner revenue. Altogether, these offerings generate revenue of $7.5 million in 2016, an increase of 21% compared to $6.2 million in 2015. Our Where to Buy solutions allow branded manufacturers to provide their web visitors or customers with a digital marketing initiatives with up to date information about the authorized resellers that carry the products and availability of those products. Product Intelligence provides branded manufacturers data driven actionable insights with our online assortment, product coverage gaps, rising trends and adherence of other retailers to constant guidelines across multiple channels - online channels to ensure consistent customer experience. We continue to see a lot of promise in our brand solutions as we look ahead. 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 and for adjusted EBITDA. 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. Fourth quarter 2016 gross profit increased 9% to $25 million, from 23.9 million a year ago. As a result, our gross margin expanded 100 basis points to 78.9% due to our leverage in our model that results from scale. Operating expenses of $21.8 million for the fourth quarter 2016 were up 9% from a year ago. Operating income was $3.3 million in the fourth quarter, representing a margin of 10.3%, an increase of 50 basis points from a year ago. Operating income in the quarter benefited from some on boarding activity which were due to holidays shifted into 2017. The combination of revenue growth, increasing gross margins and lower than expected operating expenses produced an adjusted EBITDA of $5.2 million for the fourth quarter 2016; well above our guidance range and compared to $5.4 million for the fourth quarter a year ago. For the full year 2016, adjusted EBITDA grew to $7.4 million compared to $1.4 million a year ago. Non-GAAP net income was $8.9 million, an increase of $5.9 million compared to $3.9 million for the fourth quarter of 2015. Fourth quarter net income, including the $5.3 million tax benefit from a recent valuation allowances previously reported against foreign net operating lawsuits. As a result, full year 2016 non-GAAP net income of $5.3 million increased $12.6 million compared to the non-GAAP net loss of $7.3 million for 2015. Turning to our balance sheet, our cash position strengthened during the quarter, ending at 65.4 million in cash and cash equivalents, as of December 31, 2016, an increase of $700.000 from the end of the third quarter, and $4.9 million since December 31, 2015. Improved profitability contributed to strong operating cash flow of $11.6 million for the full year 2016 and free cash flows of $9.8 million after $1.8 million of capital expenditures. Now I will turn to guidance. First, as you are aware, there were significant strength in US dollar during 2016. With this background, we expect continued currency headwinds specifically related to the British £ making comparable difficult for the first half and full year 2017. In addition, we do not expect digital marketing to contribute to revenue growth in 2017. As a result for the full year 2017, we anticipate revenue will be in the range of $123 million to $124.5 million, representing growth of 9% to 10% compared to 2016 were approximately 11% to 12% on a constant currency basis. After adjusting for an estimated negative impact of foreign currency for the full year 2017 of approximately $3 million when compared to average rates during 2016. We anticipate 2017 adjusted EBITDA of 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 first quarter of 2017, we were anticipating revenue $27.3 million to $27.7 million, representing growth of 4% to 5% from the year ago quarter. This includes potential currency headwind impact of almost 900 to 700,000 – $500,000 to $700,000 or about 2% to 3% sequential growth year-over-year. The decline from fourth quarter 2016, revenue reflects the normal, seasonal shift in revenue mix towards more fixed revenue as a percentage of total revenue. Some other revenues we expect to see a sequential decline in adjusted EBITDA as have historically in the first quarter. As in 2016 we intend to continue to strategically invest in the business, primarily in areas that can support our long-term growth, including key brand focused sales reps, account managers, as well as in R&D, while producing positive adjusted EBITDA on a trailing 12 month basis. As a reminder, our Catalyst conference was held in the second quarter of 2016. It will be held in the first quarter of 2017, resulting in related expenses to shift into the first quarter of 2017. With that in mind, in the first quarter of 2017 we expect an adjusted EBITDA loss between $1.6 million and $3.6 million. In summary, we believe our fourth quarter in 2016 results continue to reflect our focus on larger customers who has exhibited strong growth in our marketplace and brands solutions s, average revenue per customer and operational improvements, which altogether have led to increase profitability. Just as important, we believe we have laid the groundwork to see improving quarterly revenue growth by the end of 2017 and continuing into 2018. With that operator, we like to now open the call to questions.

[Operator:]

[Operator Instructions] And our first question comes from Justin Furby with William Blair & Company. Your line is now open.

[Vinay Mohan:]

Hey, guys. This is actually Vinay in for Justin. Had two quick questions. One, just wanted to get some additional color on the adjusted EBITDA guidance for 2017. Perhaps some color around what's driving that if you will, what line items are you looking at where you see investments? Is it more on the sales side versus split with? Then I have got a follow up as well.

[Mark Cook:]

Yes. This is Mark. One of the comments I made during the call was that we were expecting to invest more in R&D. We have some initiatives during the year, we feel like its going to require additional investment in that areas, plus, as mentioned also, we will be continuing to make investment in – some of our branded sales reps, in those areas as well, account management.

[Vinay Mohan:]

Got it. And then just a slightly more macro question. Have you seen -- what's the overall macro health around retail customers? Are you seeing a slowdown in demand in general? I know you mentioned the holiday season being tough in Q4 from Amazon, but just wanted to get your perspective going out into 2017?

[David Spitz:]

This is David. No, I wouldn’t characterize as a slowdown in demand, I mean, if I look at our pipeline, I think it says robust is ever, I think it’s more just around the actual growth of those customers themselves and the disruption that they are facing in the market. There are plenty of statistics out there around share gains. For example that Amazon is making an industry in general. So if anything, I think this causes more retailers to seek ways to improve their operations. For example, just a few weeks ago, Macy's when they announced the shuttering of – I think it was 68 stores, they also said that they would take something like half of the savings that they would generate from that and reinvest that back into their digital and e-commerce operation. So that’s the dynamic that I see.

[Vinay Mohan:]

Got it. Thanks for the color. Thanks.

[David Spitz:]

Thanks, Vinay.

[Operator:]

Our next question comes from Scott Berg with Needham. Your line is now open.

[Scott Berg:]

Hey, David and Mark, thanks for taking my questions, I have a couple here. David, can you talk a little bit about the shift moving up markets a little bit more, maybe a little more color there? I know that a number of customers who have committed spend above $100,000 is up year over year, I think I've got 23% if I -- or 32%, if my numbers are accurate. That's a deceleration the last couple quarters. But just want to understand what your traction is like there and how pleased you are with where you're at?

[David Spitz:]

Yes. Hey, Scott. I think the attraction is good. I think all of the things that we have been doing and decisions that we've made around pricing and policy and organization and people, including on the executive team, they are all – I think they are all the right things, but as I said in my remarks, I think we need to be moving more quickly right. So as we've narrowed our focus, it's – as you could imagine relatively easy to eliminate unqualified prospects from the pipeline as we focused on more - on more higher-quality customers. But we need to be doing more to drive more of that into the top of the funnel and to close them, even though we know that there's going to be longer sales cycles. So, I think it's – I think the market demand is there. I think it just really comes down to how aggressively we're building that and how quickly we're moving to close these deals. So if you look for example at our win ratios, they've been consistent, we just need to more quickly.

[Mark Cook:]

Scott, one more thing, this is Mark. In the fourth quarter typically customers don’t change platforms and sometimes that contributes to that number being a little bit slower growth in the fourth quarter. So we're not saying that to reaccelerate that quickly, but that’s a normal trend in the fourth quarter.

[Scott Berg:]

Great, helpful. Then one follow up, David, is it looks like you are announcing a new Head of Sales today. I assume this person is going to be in the seat relatively quickly considering your former head of sales will stay on through the end of the quarter on an advisory role but not much longer than that. But just want to try to understand, when the new person comes in, I understand they are probably going to need some sort of a digestion period to understand how you operate. But wanted to get your feel of the opportunity for disrupting your existing sales processes or pipelines with someone that my come in and makes some changes to what you do?

[David Spitz:]

Yes. Fair question, Scott. So Paul is actually already on board. He is being going through his induction process, participated in our global sales pickoff process earlier this month and I think has a great job collecting feedback from the team and turning that that back out for the team in terms of what his priorities are. So it's early and you know, I think we need to give Paul the right amount of room to make the decisions he need to make. But at this point from my perch, I don't think that there's going to be significant disruptive change in terms of organizational structure, anything like that. I think you'll a lot of tweaking and tuning and improvements in productivity as a result that.

[Scott Berg:]

Great. That’s all I have. Thanks for taking my questions.

[David Spitz:]

Thanks, Scott.

[Operator:]

[Operator Instructions] And our next question comes from Monika Garg with Pacific Crest Securities. Your line is now open.

[Jason Celino:]

Hi, guys. This is actually Jason Celino on for Monika. I’ve got a question and then several follow-up questions. First, you've been talking about accelerated growth for a while, but with the guidance it looks like that's decelerating. Can you provide more color into this type of deceleration that we are seeing?

[David Spitz:]

Yes. Hey, Jason, this is David. I think what I’ve said fairly consistently as we expect revenue to decelerate before it accelerates, and in the last few quarters I've talked about an inflection at some point in 2017. And so I think we're still being consistent with that. You know, its was not our position that revenue for the full-year would mark an acceleration from 2017, to mark an acceleration from 2016, but rather that we would see an inflection point sometime in that year. And so I think we're being consistent with that.

[Jason Celino:]

Okay, thanks. And as a follow up, I noticed that ARPU also decelerated quarter over quarter and year over year. Could you just provide some more details around that, like I know you announced the Amazon impact, but was there anything else going on to drive ARPU lower?

[David Spitz:]

Well, I think I think the comp on variable revenue in Q4 was certainly a factor, right. So if you go back a year ago, variable growth rate was quite high, primarily as a result of some policy changes we made around discounting in the 2015 period. So I think a big chunk of it was just a tougher comp in Q4 that slow down overall ARPU growth.

[Jason Celino:]

Okay. And then last question. So I know CommerceHub is looking to build out its brand's business with the former technology from its Mercent acquisition, and I know you guys are also trying to build your brand's business as well. How do these two type of strategies compete and where do you see it impacting your business?

[David Spitz:]

Sure. So I think what I would say is that we are really a leading provider in the space, I don't think any of our near competitors contribute as much volume as we do on Amazon, and Walmart, eBay and other channels to my. And obviously we're building a brands business fairly quickly. So I would say in general don't really encounter Mercent or CommerceHub in the market, I think the approaches are maybe a little bit different, CommerceHub comes up at more from a first party and drop ship perspective, where as we have historically come up at more from a third-party perspective. So I would say we're little bit more adjacent than competitive.

[Jason Celino:]

Okay, great. Yeah, thanks for answering my questions.

[David Spitz:]

Sure. Thanks, Jason.

[Operator:]

Our next question comes from Eric Lemus with Raymond James. Your line is now open.

[Eric Lemus:]

Hey, thanks, guys, for taking my question. Following on with Jason's question in the comparative arena. Have you seen any change in the competitive environment from new entrants for instance Shopify, offering sell on Amazon? Has there been any disruption in the market from those players, Shopify or anybody else?

[David Spitz:]

Hey, Eric. This David, great question. No, I would say that we haven't really seen change in the competitive landscape. We always have a set of smaller competitors that tends to competed primarily on price, but usually don’t the level of capability or service that we're able offer or the global reach that we can offer. Shopify, I would consider more of a partner, along with e-commerce and Magento and other folks in the shopping cart space. If you look at their offerings and their customer profile they tend to be in general, much, much smaller than our critical customer. And so really if you look – if you compare the – for example Amazon connector side-by-side, I think you'd see quite a gap in terms of capabilities. So we really focus on that market and enterprise by customer who needs global reach enterprise-level scale, et cetera, et cetera. And so we don't really see them in the market from a head to head competitive perspective.

[Eric Lemus:]

Okay, thanks. And then on the quarter carrying sales reps, you talked about focusing on the key brand focused sales reps for this year. But what plan do you have throughout the year as far as percentage growth for those sales reps? And of those, segmenting between the US and international, what's the main factor there?

[David Spitz:]

Yes, great question. So we actually spent a good bit of last year building up our sales team, not just at the beginning of the year, but throughout the course of the year and I think our focus for this year is the combination of productivity improvements. So making sure that the ROI and the investments that we've made continue to build and as I look at the tenured of tenure reps we have that over two years, it's quite good. I think it's an all-time high now. And so what we're going to do is we're going to continue to invest in the sales function and the more we see gains in productivity, the more aggressively we'll be doing that.

[Eric Lemus:]

Okay, great. Thanks.

[David Spitz:]

Thank you.

[Operator:]

Our next question comes from Brad Reback with Stifel. Your line is now open.

[Brad Reback:]

Great, thanks very much. David, you were named CEO just about 21 months ago. To think that revenue is still decelerating would seem to be a fairly negative outcome for you. Is this a pure sales execution issue, and hence the change in sales head? Or is there a competitive market issue that is leading to this?

[David Spitz:]

Hi, Brad. I appreciate the question. Look, I think it’s primarily go to market, I don't see it as being product market fit, I don't see it as being competitive in nature. I think that what we've seen over the last 18 to 24 months is a lot of changes, both in terms of policy, pricing, executive management, we have a new chief marketing officer who joined us last spring. Obviously Paul is new on the sales side. And you know, frankly it takes time for that stuff to come together, I'd like to see happen faster obviously, but I think if I look holistically across the P&L and our progress, I think we made good progress. So – absolutely I want to see it happen faster.

[Mark Cook:]

Hi, Brad. This is Mark, And on that note, I think we've laid a pretty good groundwork and we're excited about having Paul come in. we think he can take – the groundwork that we laid and actually take to the next level for us. So we're very excited about that.

[Brad Reback:]

Okay. And just one follow up on the guidance. As it relates to the marketing business, are you guiding flat for 2017 or some level of decline?

[Mark Cook:]

I don't think we gave specific numbers or – in terms of guidance for marketing. I think we did say that we didn’t expect any growth from digital marketing in '17 and that we were I think excited about the growth of both marketplaces and our branded solution.

[Brad Reback:]

Okay. But on that no growth, should we assume zero or something less than zero?

[Mark Cook:]

For digital marketing…

[Brad Reback:]

Yes…

[Mark Cook:]

Our models and such just probably assume zero.

[Brad Reback:]

But you just did negative four?

[Mark Cook:]

We just did negative four, that’s correct.

[Brad Reback:]

So what makes it get better?

[David Spitz:]

Well, I'll give you – Brad, let me give one example, so if you go back three years probably 30% give or take of our GMV on digital marketing was comparison shopping engines, like for example Price Grabber or NexTag et cetera. That’s less than 5% now. So Google PLA has been taking share but essentially offsetting a pretty significant decline in the comparison shopping. But as that come down close to zero, I think the effect going forward should start to be de minimis, plus as Mark and I mentioned on the call, I think there is a pretty substantial interest in Amazon as an advertising channel, you don't yet to see a lot of people talking about it on Wall Street, but the Amazon marking services and the results that we see for clients that leverage Amazon as an advertising channel are actually quite strong and its an area that’s I think underserved in the market. So we see opportunity here to keep that revenue base stable and hopefully with time grow it again.

[Brad Reback:]

Great. Thanks very much.

[David Spitz:]

Thanks, Brad.

[Operator:]

And our next question comes from Abinav Kapoor with PTIG. Your line is now open.

[Abinav Kapoor:]

Thank you. Thank you for taking my question. I heard the GMV growth at 19%, it's pretty good considering it was reasonably tough year in retooling the go-to-market efforts and hiring the salesforce. Can you reconcile if we assume the same level performance next year? Can you reconcile I guess the revenue guide with that level of GMV growth? And why is the guide so wide -- or was is the delta so wide? How is that going to close going forward?

[David Spitz:]

Well, this is Dave. Mark, probably should speak to this, but we don't really forecast GMV, especially this far out in the year. So I would say it’s not a meaningful factor in our calculation and forecasting as it relates guidance.

[Mark Cook:]

Right, from that perspective too, we have products that aren’t turn directly to GMV, such as some of our brand solutions which are fixed price and to the extent that they grow next year that will create little bit more disconnect between GMV growth and our revenue growth.

[Abinav Kapoor:]

Got it. And then I guess in light of the 4% to 5% guidance for next year, is there still that 20/20 long-term target intact? Or is that called into question now with this?

[David Spitz:]

Well, I think we have the capacity as a business to grow faster than the rate of e-commerce, yes, I believe that and as we've talked about, we believe that as we achieve certain levels of scale that the EBITDA margins can also come up to appreciable levels. So we think opportunities out there and we're going to continue march forward towards that. But I think we've shown those, that we have pretty firm grip on the on the expense wheel. So, our ability to manage expenses, in light of a variety writing revenue growth scenarios is such that you know, for some reason not able to see those kinds of revenue growth figures on our on horizon, we can manage expenses accordingly.

[Abinav Kapoor:]

Okay, great. Thank you.

[David Spitz:]

Thanks, Abinav.

[Operator:]

At this time, I am showing no further questions. I would like to turn the call back over to Mr. David Spitz for closing remarks.

[David Spitz:]

Great. Thank you everyone. We look forward to speaking with you in the near future and hopefully seeing some of you at our Catalyst conference next month. Thank you

[Operator:]

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