Q3 2019 Earnings Call

Listen only mode. After just speakers presentation, there will be a question and answer session to ask a question doing that section you will need to press star one on your telephone.

Acquire any further assistance. Please press star Zero I would now like to have the conference over to your speaker today Traci Mangini.

Thank you Carmen and good morning, and welcome to Channeladvisors Conference call for the third quarter 2019. My name is Traci Mangini director Investor Relations and with me on the call today or David This channel Advisors, Chief Executive Officer, which Cornetto Channeladvisors, Chief Financial Officer, and that's the Goliat Channeladvisor.

30, Chief operating officer.

This morning, we issued a press release with details of our third quarter 2019, performing as well as our outlook for the fourth quarter in full year 2019. This press release can be accessed on the Investor Relations section of our website at <unk> Dot Channeladvisor dotcom.

In addition, this call is being recorded in a replay will be available after the conclusion of the call.

During today's call, we will make statements related to our business, but maybe 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 could differ materially from expectation.

These risks are summarized in the press release, but we issued today.

For further discussion of the material risks and other important factors that could affect our actual results. Please refer to those campaign in our most recent Form 10-K or Form 10-Q , as well as our other filings which are available on the FCC website at www Dot FCC Dot 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 and nonrecurring severance and related expenses.

Our press release issued today includes GAAP to non-GAAP reconciliation for gross profit gross margin operating expenses operating income operating margin adjusted EBITDA non-GAAP net income and free cash flow.

We also provided GAAP to non-GAAP reconciliation schedule in our supplemental financial presentation posted on the Investor Relations section of our website and IR Dot Channeladvisor Dot com.

Finally at times in our prepared comments worrying responses to analyst questions. We may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business. We're quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future with.

Now, let me turn the call over to Dave It forgets prepared remarks, thanks, Crazy and good morning, everyone.

Our performance so third quarter was solid revenues of 31.7 million were inline with our guidance range.

And the work that we did to improve profitability in July began to yield positive results. So we posted adjusted EBITDA of 5.2 million.

Substantially better than our previous guidance and more than doubling as a percentage of revenue compared to the same period last year year to date free cash flow of 4.8 million also represented a nearly 6 million dollar improvement compared to the same period in 2018.

Once again, our Onea Australian regions, both drove strong double digit year over year revenue growth for the quarter on a constant currency basis. The primary driver of our performance in these regions has been solid execution against bookings and turned targets in recent quarters, particularly with brands there should position both regions continued near term revenue growth.

Domestic revenues declined slightly compared to the same period last year and although this represented a modest sequential improvement from the second quarter.

We believe that can be better than this and improving results from U.S. is our primary area of focus.

Fundamental driver of our domestic revenue performance has been a lack of bookings growth new U.S. So the last couple of years and contributing to this has been a gradual decline of the number quota carrying headcount over that period.

And Paul Colucci stepped up to run the sales for us in the third quarter. The quickly agreed on the need to hire additional sales reps to get our sales capacity to appropriate levels.

Really pleased to report than an expandable last 60 days, we've already bought those resources onboard and a running them through training as we speak.

We believe this improved level of sales capacity and better aligns our U.S. coverage with what we have in India, and Australia and improves our ability to drive bookings growth in the U.S. in 2020.

Importantly, the cost of this incremental investment what was done largely offset by reductions we made and other areas and our July reorganization and was already contemplated in the numbers rich shared with you on our last call.

Our sales leadership transition on third quarter went smoothly and coupled with improvements in revenue retention I'm pleased to report, but we've seen an improvement in net bookings year to date compared to last year, making us optimistic that we're better positioned to drive revenue growth going into 2020.

After channel performance GMB on Amazon accelerated on third quarter to the highest year over year growth rate and a year mirroring Amazons overall accelerating revenue growth rate, which is great to see.

Strong Prime day performance in July and the benefits of one day shipping has been solid contributors.

Amazon has gone a tear lately and this is also showing up in our digital marketing results, which continued a string of recent year over year growth for the core.

Notably in the third quarter for the first time, we managed more AD spend on Amazon then you get on Google, reflecting how quickly Amazon has become table Stakes are they digital marketing channel.

We believe we remain uniquely positioned at most complete solution to help brands and retailers managing Amazon Holistically from advertising. The first party selling dropshipping marketplace management price optimization and fulfillment and we expect to continue succeed to see success on Amazon is our largest channel.

The strength on Amazon was partially offset by GMB declines on ebay, which had a modest impact on our variable and strategic partner revenue in the quarter.

Interestingly this year through third quarter, we've reached a point, where Amazon JV to our platform is more than double what we see on ebay.

While we expect the E Bay will remain an important channel for our customers Handoffs for a long time to common it's trends suggest that ebays results are likely to be less impactful gradually to our results over time.

Continuing recent trends are long tail, that's supported marketplaces enjoyed solid year over year GMB growth.

Hi, like one that I haven't talked about before rockets, and U.S., which is a division of rackets and each about the largest ecommerce site in Japan and among one of the world's largest by sales had strong performance rather than the third quarter.

While we supported this marketplace for some time, we've recently expanded our strategic relationship with them and have experienced a substantial improvement in seller adoption of GMP volume as a result.

As demonstrated by our work with Google on shopping actions I worked with record 10 highlights the mutual benefits, we see with our partners want to collaborate closely with them.

And speaking to collaboration targeting the marketplace target plus continued to perform well while invitation only for sellers target plus as client to our seventh largest marketplace in terms of GMB after launching in 2018.

We believe our industry, leading breadth of supported channels across dozens of countries provides exceptional value to our customers that makes us the preferred partner for newer marketplaces.

We also continued to make good progress and acquiring expanding and servicing our brands customers with brands now comprising over one quarter of our trailing 12 month revenue and becoming an increasingly important driver of our business and as that will touch on in a moment. This continues to be a key strategic focus for us.

Now I want to emphasize that our primary focus over the next few quarters is blocking and tackling with the objective of improving our core execution, especially in the U.S. as we work to improve revenue growth.

I'm pleased with our improved profitability this quarter or smoothed sales leadership transition the progress we've already made and getting our U.S. sale staffing to appropriate levels as we prepare for 2020.

And we look forward to driving another successful holiday selling season for our customers over the next few weeks.

As we think about our outlook for the next year, it's a little early to call the numbers, but we're focused on returning to revenue growth and driving continued margin expansion at 2020, we'll obviously have more to talk about on this front our next call.

Now I'll turn the call of it about for a few remarks, you'll recall that last quarter that was promoted to chief operating officer and she's been busy over the last couple of months absorbing and integrating several new teams, including our product organization.

Thanks, David and good morning, everyone.

It's been a productive humor since assuming the role of COO and Oregon.

Kurt stuff what to implement some organization changes, which included reallocating resources and leadership with in key areas of the operations to streamline and optimized business performance.

We're very happy with the structure, we now have in place and we're already seeing improved operating efficiency and enter departmental collaboration.

He share a few of those changes.

We have consolidated all of our internal operations teams into one organizational unit. This has allowed us to get more efficient with reduced resource that in addition, we've created a new business intelligence team that will monitor key performance metrics for the business, providing analytic improving visibility and delivering more acts.

Nimble intelligence across the company.

We are pleased to share that Steve first cat recently took on the role of Vice President of product management team came to Channeladvisor in 2017 as part of our have logic acquisition, where he held the role of Chief Technology Officer. Prior to that he served as the VP of engineering, it click a leading business intelligence and analytics.

Whore.

Steve has 25 years, a software development and product management experience across a variety of software enterprises and start up and we are excited if they can take on this critical leadership role.

Working with speed and our entire talented product and engineering team, we will focus our development roadmap on maintaining our market leadership position and further enhancing our already strong value proposition for brands by building out a comprehensive platform for them to leverage no matter, where they are in their digital journey.

So let me talk a little bit about some of our recent innovations in our technology and where we are going.

In April of this year, we rolled out a simplified and more modern user experience and to improve speed and quality of customer onboarding and retention rate, especially for newer customers.

Inject five short Mark we reached 100% adoption and the feedback has been extremely positive clients tell us the new layout save some quick makes more sense to them, it's easier to use and they like that it shows and relevant help topics embedded in the out when and where they need that information.

Throughout the year, we've continued to invest can maintain our leadership position in market places.

From the deployment of multiple new pricing capabilities, including our cross marketplace velocity, Repricer and our Amazon pricing council to enhancements in our Amazon advertising capabilities like sponsor brand support keyword automation and sponsored display to building out our shipping management suite and.

Finally to adding exciting new channels like check out on Instagram, Google shopping, France, and Amazon, Turkey, and you aim.

With our priority focus to build capability for brands, we have continuously deployed new features as part of our where to buy and by local solution, including enabling by local on demand, which provides real time product availability at local retail store by local promotion and improved visibility with our 360.

<unk> analytics for product.

We have also been working to develop improved self service approaches, including enabling a try then by business model and product in October we launched Channeladvisor elevate for Amazon, Our first zero touch self lineup and self launch application.

This is important because it provides a solution to clients, who want a lower cost algorithm and rephrasing technology for Amazon.

In addition, it gives us the opportunity to cost effectively bring some of our enterprise capabilities to new customer.

Finally, this approach is enabling us to learn what it takes to further simplify our user experience to enable improved self service for our overall platform. This new endeavor as very early yet and we're watching it closely as it evolves.

Looking forward our product road map continues to enable clients to self service and also focuses on serving the needs of brands in all core categories from third party in first party marketplace solution digital marketing where to buy and fulfillment.

Continuing to pursue the path of improving self service in South launch we will create a starter addition version of our marketplace capability.

That's what take US one step further and enabling a good better best strategy for adopting our technology.

This solution is expected to be launched through strategic partners and create an opportunity for us to address the needs of salary at different stages in their E Commerce journey.

For brands, we plan to enable online promotions expand our threesixty analytics and enhance our social media capabilities within our where to buy platform.

Longer term, we plan to leverage our existing where to buy technology to build out new capabilities to expand visibility for brands around product availability content, He said rating placements price and promotion.

Finally, we will continue to invest in our current clients by improving time to value for many of the core or closing our platform, including improved visibility for launching new channels and lifting error resolution.

As always we plan to add channels with marketplaces in retailers as we identify those partners and opportunities.

We are proud of the many innovations we've relief and our platform. So far this year and feel strongly that we have provided critical technologies to position our client for success. We are looking for work and working with each of them to achieve their goals this coming holiday season.

Now I'll pass the call tourists to discuss the financial.

Thank you Beth and good morning, everyone.

Just on my prepared remarks by thanking the channel of other team for their collaboration following our reorganization in July .

Together, we have use this opportunity to identify and execute on improved efficiencies across the organization. These efforts have allowed us to remain on track to achieve the annual cost reduction goals discussed on our last earnings call in August .

So, let's talk about the highlights and trends of our third quarter performance.

Please bear in mind consistent with our historical practices my comments regarding expenses will be on a non-GAAP basis, and all comparisons are on a year over year basis, unless otherwise specified.

As David mentioned, we posted solid quarterly results revenue wasn't along with the guidance range, while adjusted EBITDA well exceeded the high end of the guidance range setting up on pace to double adjusted EBITDA margin in 2019 compared to 28.

We also achieved another quarter of strong free cash flow and posted net income for the third quarter.

Total revenue was 31.7 million down 2% overall I must have 1% on a constant currency basis.

Fixed subscription fee revenue was 25.8 million, where 82% of total revenue and variable revenue was 5.9 million representing 18% of total revenue.

Six revenue grew slightly for the quarter up about 1% compared to the year ago period, and continue to increase as a percentage of total revenue.

This revenue mix shift toward higher recurring revenue in the quarter largely resulted from more customers moving to higher fixed rate tears and some of our strategic partner agreements evolving to incorporate more fixed fees instead of purely variable revenues.

Ratable revenue was down 12% compared to the third quarter last year, which was primarily driven by the six parking trends I just mentioned interim lesser extent declines ebay GMT.

Looking at revenue by product our marketplaces platform revenue was 23.3 million for the quarter down 3% compared to the year ago period and comprised 74% of total revenue.

The decline of marketplaces was driven by variable revenue, particularly on the U.S. in China.

Digital marketing posted another quarter growth with revenue of 4.8 million up 4% from the prior year period and represented about 50% of total revenue.

Consistent with last quarter EMEA was the primary driver for growth in the quarter as wasn't Amazon Amazon advertising in the U.S.

From a geographic perspective revenue from U.S. acquiring three person in the quarter for the reasons David discussed however revenue from outside the U.S. increased 4% to 26% of total revenue.

This growth was achieved and this growth is achieved despite declines in China, which was down 33% from year ago period, as well as foreign currency headwinds.

The strength of international revenue was driven by EMEA, and Australia, which were up 20% on a combined constant currency basis for the quarter when compared to the prior corresponding period.

Recall that to me in Australia benefit from a much higher concentration of brands customers, which typically a better unit economics and lower churn levels.

In the quarter about one third of our customers in EMEA and Australia combined were brands compared to about one system the U.S.

As we enter 2020, expanding this called key customer segment in the U.S. is a focus of our growing U.S. sales organization.

Now for some information on customer metrics.

We ended the third quarter with 2718 customers stable compared to the customer count at the ended the second quarter, we continue to see a mix shift towards brands from retailers in the quarter with our percentage of brands customers expanding to over 20% of our car customer base as of the ended the third quarter.

Also total average revenue per customer so continued, albeit modest improvement <unk> during the third quarter eclipsing the 47000, Mark on a trailing 12 month basis.

Adjusted EBITDA grew substantially to 5.2 million for the quarter up 2.9 million, representing adjusted EBITDA margin expansion of 900 basis points from the prior year period with improvements across all reported expense line items during the quarter.

Please note that the results for the quarter do not include approximately $1 million or severance and related costs, resulting from our reorganization in July .

This strong adjusted EBITDA performance was a direct result of our strict cost discipline and the reallocation of capital from our reorganization in July of this year aimed at making investments in sales services and support to enable a return to growth in the U.S. and further strengthen our international operations.

For the third quarter, we generated net income of 1.7 million compared to net loss of $2.3 million a year ago period. The improvement from last year was driven not only by significant reduce cost reduction efforts, but also the strong success of international operations.

Turning to the balance sheet, we finished the quarter with cash and cash equivalents of 48.2 million representing a decrease of 800000 during the quarter, but an increase of 1 million since the beginning of the year. It's important to note that if not for the 1 million or severance and related payments during the quarter. We would have enjoyed another quarter or positive cash flow.

We recorded another strong quarter of free cash were 1.8 million and expect to be careful positive for 2019, highlighting a significant improvement from the net use of cash of 6.2 million in the full year 2080.

So now let's discuss guidance.

We are narrowing our full year 2019 revenue guidance range to 129 to 130 million from 129 to 131 million as issued on August eight primarily in anticipation of continued GMB declines on E Bay and potentially greater foreign currency headwinds as a result for the fourth quarter, we're issuing guidance in the range of 33 dot.

Hey to 34 Dot 8 million.

For adjusted EBITDA, we are raising the low end of our full year 2019 guidance and now we're in the range to 18 to 18.5 million from 17 to 18.5 million range issued on August eight.

As a result, we're issuing fourth quarter adjusted EBITDA guidance of 7.2 to 7.7 million.

At the midpoint of our full year 2019 guidance. This represents an improvement in adjusted EBITDA margin of approximately 700 basis points compared to 2018, nearly doubling our adjusted EBITDA margin.

We believe these improvements in profitability positions us with a stronger more efficient model to drive growth in the future.

This improved profitability combined with our focus on brands the strong performance by international operations and the investments, we're making within our U.S. sales organization make us optimistic about our future.

With that operator, we'd like to now open the call the questions.

Thank you another reminder, ladies and gentlemen, if you have a question you would need to press star one on your telephone.

To withdraw your question just press the pound key.

And we have a question from the line of might fall with William Blair. Please go ahead.

Hey, guys. Thanks for taking my question I first wanted to dig in a bit on a comment the returning to revenue growth and 2020, and maybe you can just give us some more details on on what the primary drivers. There is that just the U.S. salesforce ramping up are there other.

Things.

Solve their that's pushing you back to growth and 23.

Hey, Matt This is Dave, Yes, I would say that the that's the primary driver.

And I should also be clear that when we talk about incremental headcount, we're really just kind of getting or.

Our nominal sales capacity back to levels that we had.

Back in 2017, so just kind of getting back to a level that I think appropriate to cover the market opportunity and importantly.

Offsetting that from savings in a in other areas so that that investment.

As I mentioned on the call. We've got we've got that capacity largely onboarded at this point, there's probably going to be a few more incremental hires before the end of the year.

And it does they don't become productive instantaneously, obviously, so we expect a ramping time, but that that would be the primary driver of improving our bookings performance in the U.S., a with an eye towards.

And the performance overall in the U.S.

Got it and wanted to dig into the metrics that you gave on on brands of and the Delta between the number of customers that are brands and the U.S. and then the number of customers that are brands and EMEA and Austria. They have maybe just some more details on.

On what's driving that and there's a.

Big disconnect as to why there's a much higher percentage and and outside of the U.S. and then in the U.S.

Yeah, Hi that a this is rich I think we mentioned in the past that Oh, the large amount of the brands concentration, especially in EMEA was really started off with our acquisition of detailed back in 2014, which was where to buy product a highly brands focus and that really helps spearhead the growth.

That we've achieved with in the brand.

Community.

You know, we focused on a land and expand opportunity in EMEA, whereby we're we're signing these brands with.

Potentially a few skews that the start and maybe a geography or two and then realizing the strength of our platform and we've seen a tremendous amount of opportunity in growth with regard to expansions with our brands customers.

So not not lending to more sales more customer count, but really providing an opportunity to grow the brands business. Yeah, Matt One thing I'll add is that in EMEA in particular, our sales team began initiatives and initiative earlier this year to focus on a platform messaging meeting instead of necessarily going to market with into that.

Dual point solutions really.

Pitching the overall platform because brands as you know.

Actually use every element of our platform, whether its andas on advertising or where to buy or marketplace, selling or drop shipping and so.

Rather than a focus on individual capabilities kind of bringing together the holistic platform message and I think early.

Early indications and returns on that initiatives have been has been really good.

So if you're if you're a brand which you don't want to do is.

Sign up for a point solution in one geography find an alternative solution and other geography that have to stitch. These things together. So the fact that Channeladvisor has this holistic platform and as global who has a significant differentiator for us and I think you'll start to see us adopt that approach in other regions as well.

Yes.

Okay last one from me I'd just on your expectations for for Amazon going into the fourth quarter I I think getting the in the past the fourth quarter with Amazon has been somewhat difficult to predict for you guys and in terms of what the mix of of one P. and Threepi is there on their platform and impacted.

Your guys results to just curious sort of curious as to what.

Approach or expectations, you have there for for Amazon going into the fourth quarter.

Yes, so it's a great question, we've seen a sequential acceleration and Amazon GMB for each of the last three at least if not for quarters.

And I think some of that is product capabilities that we've rolled out and driven adoption by our customers so whether its repricing advertising.

Et cetera. So it's I think we're reasonably well positioned with Amazon now Amazon itself had.

Nice acceleration last year than kind of came down a bit and then has has re accelerated so.

It's always a little bit hard to predict honestly, what's what kind of dynamic we're gonna see it's also going to depend on.

What other retailers do in terms of trying to pull some of the holiday spending forward as it is a shorter holiday season in terms of number of days this year.

If you just look at the time between Thanksgiving and Christmas So.

We don't necessarily anticipate that that means the overall less nominal spending.

But it could pull some that's going forward. If people are our started retailers are starting to try to drive more promotional activity and so that that dynamic is hard to predict and.

So I think we've been.

Appropriately thoughtful about what we expect grounds on this.

This quarter, but we'll have to see.

Yes.

Great. That's all I had guys. Thanks a lot.

Thanks.

Thank you enter next question comes from Ryan Macdonald with need him. Please go ahead.

Good morning, Thanks for taking my question I guess, David first one for you can you doing a little more detail about the declines you saw in the U.S. business and clarify was that all solely due to sort of the attrition you saw on the in terms of numbers sales heads or was there something I guess broader from a macro perspective that was causing some of that weakness.

No I think I think the proximate issue has just been sales capacity well under driving a.

Lower bookings number right so as far as I mentioned on the call we haven't seen.

Real bookings growth in the U.S. over the last the last couple of years and I think that to my views of the primary driver that has been a gradual erosion of sales capacity, which is which is something that weve rectified.

There has been a little bit of Lumpiness in partner revenue.

Over the last three I'd say 18 months or so.

Some of that I would attribute to to ebay GMP declines and that's.

I worry a little bit less about that because those tend to common they tend to they tend to go but sales capacity. I think is is really important for us to to drive sufficient business into into Channeladvisor. So.

Return to return to revenue growth. So that's my views of the that's the that's the primary thing that leads that we need to focus on.

Got it and then in terms of a sort of the physical exit from China. I think you mentioned it was down about 33% year.

Year over year in the quarter, how how's that trending versus internal expectations for sort of the pace of the declines in that business and in what should we expect in terms of sort of the how long the tail is of the impact of that exit.

Yes, so so China for us is trending.

With expectations so.

Obviously, we anticipate that there will be ongoing revenues as we go into 2020.

I think it too specific on numbers and timing, but.

Our view is that it's it's not going to be a material a part of our business. In 2020, now having said that I will continue to point out that we continue to service customers in China.

We do continue to opportunistically sell into China from our team in Australia, which is what we did prior to having an office in China. So.

I don't view this as a a complete exit from from China. This is just removing the physical footprint. There. We continue I expect we'll continue to sign customers continue to service customers.

As we go into 2020, but we don't expect that to be a significant driver in 2020.

Yeah, I would just after that but that that in China in Australia, and our operations there and we've been very specific about hiring resources that speak Mandarin and so we are able to serve as to our China clients in language, which is really helpful, particularly as they have technical support questions and requests.

Our our health and so we've seen that really play a factor in retaining.

Some of that client revenue. So again as David said, we expect to continue to service clients from Australia, and see you know many of them stay with us as they take advantage and leverage the platform to drive their businesses.

Got it and then just one last one for me best for you I guess on on the starter addition solution.

Can you talk about sort of how you're trying to position that to drive net new customer adoption and I asked based on the fact that I think when we look back to 2017 2018, we sort of saw shift in strategy of moving up market into trying to surface larger customers are we trying to go back down market again to win I guess customers earlier.

Thanks.

I think what we're really trying to do.

Allow more clients access to our capabilities that otherwise maybe you can take that site depending on the states. They are in their overall evolution as a business and so we want to start with some of the most basic capabilities that are required to do business on multiple marketplaces, and then give them access.

To that and then as they mature have them be able to take advantage of larger portions of our platform. So really that's good better best strategy. We think allows us to bring more clients in earlier in their journey and then have them grow right along with yes. Once that's one thing I'll add Ryan is that the reason we moved away from smaller customers starting in two years ago.

It was because of the lifetime value the durability those customers was not particularly strong and when you couple that with a direct salesforce. The the metrics were just upside down right. So the difference with starter addition, as if this is not something that will be sold through our salesforce theres no cost of of customer acquisition associated with we're not even planning to market. It directly from our own website, we tend to go to.

Tend to go to market through partners.

So that ultimately will be driving customer adoption of this platform at what we hope to be close to zero cost of acquisition and so even though we would anticipate turned to be higher at that segment. That's acceptable because the denominator of the LTV to CAC ratio is close to zero. So.

We think there's a we think there's a significant market opportunity. There there are millions of sellers on Amazon and ebay and other platforms that are that are quite small and if we can bring some of the power panel bother to them at a very low cost to us. We think we can open up incremental market opportunity, but from a direct sales perspective, we continue to focus on larger higher quality customers and brands in Peru.

Take care.

Very helpful. Thanks.

Thank you and our next question comes from Thomas Forte with D.A. Davidson. Please go ahead.

Great. Thank you. So I had two industry questions in one company specific question. So the industry question I wanted to kick off with is online sales tax. If you look at ebay. They suggested that it was 800 basis point headwind for the U.S. GMB growth in the first half of that accelerated to 300 basis points since.

The quarter and further accelerated the 400 basis points in the fourth quarter and then that's the first part is also talking more on favorably about the headwind from online sales tax. So we'll start that now go to the next two.

Yes, Tom This is a this is David I mean I assume that the question is do we do we agree that there is a similar kind of impact out there is that in those you're asking.

Absolutely so yes, I view the student in the industry has an excellent understanding industry. So from your vantage point are you seeing something similar and then therefore does that just make this you know I guess or one year issue as we face is rollouts from the new states foresee legislation.

Perhaps longer term.

Great question. So I think my I tend to think about this a little bit longer term and I think that the benefits of e-commerce and the continuous reduction in the free in the friction of purchasing process and the improving speed at which products are delivered if you look upon going to one day as an example, I.

I think all of those things are really really strong value propositions for consumers, especially the convenience consumer and so to me the incremental headwinds created by online sales tax.

I don't think is is a long term kind of secular driver of a shift for example away from E. Commerce I, just don't think that that's the case.

So I think of it is more likely a speed bump along the long journey of ecommerce continuing to expand share of wallet.

I can't speak for ebay or etsy or for other platforms and we don't necessarily have the same kind of visibility they do into things like cart abandonment.

That would give them a little bit more of a sense of what that what that headwind is from a quantitative perspective.

But as you know amazon's been collecting sales tax burden for quite some time.

And they continue to accelerate and accelerate share gain.

So my view is that on balance in particular, the convenience customer consumer is.

It's going to continue to shop online and to the extent theres any headwinds from an online sales tax perspective, my personal view is.

More temporary and permanent.

Good.

So my second question it sounds like you're making real progress on your new product initiatives as far as giving us greater flexibility to your customers to pick and choose maybe slight services versus having an end to end solution. How should we think about the potential sales and market margin impact well.

Example is the gross margin of these new products similar to the legacy ones higher or lower.

Yes, it's super early just to say the honest I think if you look at elevate which is our repricing app that leave that we've launched.

I would say this is this is for us essentially still an experiment right. We're learning about what it means to deliver a completely self service zero touch after the market.

And optimizing how how we drive adoption, how we drive conversions and things like that so I would say, we're still very much in the in the learning Phase obviously starter addition, as a.

As a more substantial initiative and as I as I responded to previously in the previous question.

It's important trust half partnerships to bring these to market.

From a from a gross margin perspective.

I don't want to get too far ahead of ourselves, but I think these are these are more pure play.

End of SaaS offerings, right like monthly fixed monthly fees.

Fairly fairly straightforward and I would expect that the PML efficiency of these apps at scale would be would be pretty attractive, but if you asked me to be happening at this point the hazard.

I can look as we think about 2020, obviously, we have some internal objectives for for these products but.

But as we think about 2020 from a public perspective, we're not not contemplating any any meaningful contribution from that at this point, we've got a lot.

To see.

Okay. So certain fine on did you sort of cheese on this one so as one day shipping from Amazon.

As is or is not.

Turning the consumer to expects products on a one day basis, how do you think or what do you think it impact is on other marketplaces are they going to have to rollout similar services.

Well they.

Further sure to Amazon, So basically music other marketplaces are going to have to respond with their own one day efforts, where do you think that's.

As Amazon or is Amazon not training the consumer to expect everything's going to one day basis.

I think absolutely that's the case.

At the end of the day people like instant gratification people want to get the products that their purchasing.

As quickly as possible.

And I think this is.

Just another page in the sort of relentless Amazon playbook of.

Continuing to raise consumer expectations in terms of convenience cost efficiency et cetera.

You probably noticed the Amazon is rolling out.

Essentially.

I, Shouldnt say free, but including whole foods delivery now in prime Prime memberships, which is a.

A reduction in cost compared to what it was previously right. So obviously, that's that's a shot across the bound the grocery stores. So yeah, I think I think.

I think one of the challenges in the space is that a lot of a lot of other people in E. Commerce are still kind of spooling up how to match to day delivery and so now the goal posts have basically moved and now I think one one day is going to become increasingly important as the same day.

So.

Now the advantage a lot of a lot of Amazons competitors have as they have store footprints that physical distribution networks already to some extent and there that can be.

And I just medically at least we tool to.

To start to to to match that that promise, but.

In my view, absolutely. It's continued to condition the consumer too I expect that kind of instant gratification and I think everybody's going have to continue to play catch up.

Great. Thank you for taking my questions I appreciate it.

Thanks, Tom.

Thank you and our next question is from sack coming with B. Riley FBR. Please go ahead.

Yes, hi, good morning, Thanks for taking my questions. So I just had one question around your new elevated solution I know, it's just launched.

A little over a month ago, but I'd be.

Interested in any sort of early feedback you have in terms of.

Customer feedback or or potentially the conversion rates youre, saying on non free trials to actually paying subscriptions.

Yes that gets like Super early so we're offering a 30 day trial.

So for a lot of the folks that have sign up we're not even at that 30 day.

30 day, Mark So I think it's a little premature to comment on conversion rates and things like that but.

I think its I think it's a strong offering I think it's priced really really attractively and remember there's there's potentially a dual benefit here. There's a there's a standalone revenue opportunity with elevate but there's also.

An opportunity to drive leads into our sales team. So for example.

The moment, you sign up for elevate and attached to your Amazon account as you can expect we we attach that account and we hope we helped drive repricing, but it also helps us identify customers that are driving sufficient volume that they may be candidates for.

For our overall platform and so it's Scott I think some some dual benefits there but.

At this point I would very very much characterize it as early stage, we're still learning we're still tweaking I know that early on into the process.

Through our instrumentation of our of our product we were able to identify a couple of pickup points, where customers coming in got a little bit stuck.

And were able to to improve that so that's part of what I like about this program as it is giving us much better visibility into some of the areas, where can where customers can get stuck and some of that learning goes back into our core product as well. So so I think it's got it's got some good long term long term benefits, but it's still very early to comment on any numbers.

Yeah, I understood, thanks or commentary and.

The question is that the company is appearing well positioned to return to organic growth next year, but with all the cash on the balance sheet and your expectations are being free cash flow positive. How are you thinking about M&A and your strategy potentially to move closer to brands by by acquiring another capability.

Yes, I touched on a little bit on the on the last call either so I want to start by emphasizing and being really clear that our focus over the next few quarters is blocking and tackling it's making sure that we get are you actually helps capacity not only back to levels that we think are appropriate, but then productive.

And really driving that organic growth.

I think that to the extent that.

You know there's a concern that if we know that we would somehow put a lot of lot of leverage on the balance sheet and put the balance sheet at risk by trying to do really really big transformative M&A.

That's not that's on our wheel house, that's not our intention. The fact, we've got a strong balance sheet and our cash generative. We view is as strong assets for us and gives us the flexibility to make the kind of changes that we've been making.

So so for now I think though the focus really is on that on that blocking and tackling to get us back to back to performance.

I understood. That's helpful. That's all the questions I have for now, but thanks again for taking my questions and best of luck with rest of the year.

Thank you to think that.

Thank you and that's very minor ladies and gentlemen for question just press Star then one.

And our next question is fun, David Gearhart with first analysis. Please go ahead.

Hi, Good morning. Thank you for taking my questions. My first question as you mentioned that brand customers represent 25% of trailing 12 month revenue can we get the comparable number from the prior year period, just to give a sense of the trajectory.

I don't think that we have provided that.

So so let us let us look at that and see what we can provide that off we provided that historically, but what I would tell you is the trends are a good we feel very good about our brands our brands business.

And what can you provide the growth rate because I know in past quarters, you provided a year over year growth rate I think last quarter, you you didnt provide it but problem and get to get that metric this quarter.

We haven't provided it continues to be strong I think our views that we're not necessarily intending for every metric that we talk about to be an ongoing quarterly metrics.

But what I can tell you as we continue to be really pleased with our brands performance.

Okay, and then lastly from me.

It's more of a high level question with the focus on brands and that whole shift to marketplace selling.

Your customer additions have been up and down.

Last several quarters and this quarter three to three additions last quarter, you you've lost some customers and I know that in the past you had a shift of focus from from small to larger accounts, but by nature of focusing on the brand strategy do you inherit we.

Are you inherently at risk of losing customers in your base as brands clean up or cleanup quote on quote.

The reseller channel and kind of tighten up who is allowed to so brand products on marketplaces as Dave themselves adopt marketplace strategies, just wondering if there's some sort of effect and shift and your base that we need to better appreciate to understand your growth. Besides no sales capacity that theres, another issue or dynamic going on.

Yeah, Great question, David I, you know what I would say is that I think in the industry. That's been going on for a long time, and probably will continue right as more brands.

The digital and e-commerce as a critical area that they need to be involved in.

I expected that you know that that dynamic continues and that would continue with or without channeladvisor right. So.

So part of the reason that we have shifted to brands is in anticipation of the likelihood that if you fast forward five years or 10 years.

Very likely that share of wallet will be higher for ramp going direct and then through intermediaries. So this was the whole reason for our hypothesis of brands will become an important customer segment Thats why we did the acquisition of retail.

A few years ago, and that's why we continue to focus on that as we as a strategic customer segment. So so I don't think thats, a new phenomenon I think thats something thats been happening I expected something that we'll continue to happen.

But I feel like we are very well positioned to to serve that market. So.

So hopefully that answers your question.

Okay. That's it from me thank you.

Thank you David.

Thank you and I'm not showing any further questions in the queue I would like to turn the call back to Traci Mangini for her final remarks.

Well. Thank you everyone for joining us this morning in for your continued support we look forward speaking with you again soon.

Thank you ladies and gentlemen, this concludes today's conference call.

Thank you for participating you may now disconnect.