Q4 2019 Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 Channeladvisor earnings Conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the section you will need a press star one on your telephone please be advised of today's conference maybe.
We recorded if you require any further assistance. Please press star zero I would now like to hand, the Congress or your speaker today Ms. Traci Mangini. Thank you. Please go ahead.
Thank you Daniel and good morning, welcome to Snow Advisors conference call for the fourth quarter and full year 2019. My name is Traci Mangini director Investor Relations and with the on the call today, Our day to day. This Channeladvisors Chief Executive Officer, that's Adobe and Channeladvisors, Chief operating officer enriched cornetto channeling either.
Chief Financial Officer.
Good morning, we issued a press release with details on our fourth quarter and full year 2019 performance.
It was our outlook for the first quarter and full year 2020.
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 an 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. It should not be considered representative of our views at any subsequent date, we disclaim any obligation to update any forward looking statements or outlook. These statements are subject to have a.
Variety of risks and uncertainties that could cause actual results could differ materially from expectations.
These risk are summarized in the press release every issue 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 as well as our other filings which are available on the FCC website at Www Dot SBC dotcom.
During the course of todays 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 that we issued today includes GAAP non-GAAP reconciliations for gross profit gross margin operating expenses operating income operating margin adjusted EBITDA non-GAAP net income and free cash flow.
We also providing GAAP to non-GAAP reconciliation schedule in our supplemental financial presentation posted on the Investor Relations section of our website <unk> IR Dot Channeladvisor Dot Com also included in that supplemental financial presentation, our chief financial and operational metrics, which may be referenced on this call.
Finally at times in our prepared comments or responses to analysts questions. We may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business, where 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.
Our remarks, thanks, Tracy and good morning, everyone. I was pleased with our fourth quarter results revenue of 34.8 million was at the top end of our guidance range driven by solving holiday selling period and improved variable revenue trends and while we reinvested in several key growth initiatives, our focus on efficiency and improving customer quality.
The dramatic improvements in profitability and cash flow more than doubling our full year adjusted EBITDA compared to the prior year to over $20 million, while driving more than $13 million, an operating cash flow for the year.
And at our restructuring took place in July of last year, you'll be only five full month. The benefits. This full year achievement highlights the strong earnings potential of our business.
Well I want to be clear it and we remain focused on driving revenue growth and I believe we are well positioned to improved growth based on several factors I'll detail in a moment.
All the same it's great to demonstrate the improve the efficiency of our business and its potential to drive long term profitability.
These results validate our strategy over the last few years up moving towards a higher quality customer base with a specific focus on larger customers any particular on brand.
I would therefore like to revisit the strategic framework under which was an operating since 2018 highlight a few key areas of substantial progress as well some metrics, we believe support our strategy and why I'm optimistic about 2020 in the next few years.
Recall that our strategic framework centered on three pillars first to protect and optimize our core business second to expand our business with brands and third to drive more business through strategic partners in order to augment our direct sales efforts and efficiently access market segments.
Let me begin with brands, we demonstrated great progress on this front in 2018.
Fans are important because we believe that digital continues to disrupt traditional retail and is driving more brands to adopt E commerce as a strategic channel I'm pleased to report the brands drove over 26% of our revenue in 2019 up from less than 22% in 2018, and then in the fourth quarter brands drove 28% of our revenue.
What excites me most is that every element of our platform appeals to brands, whether its Amazon advertising dropshipping marketplace down or helping to banners direct to consumer logistics, we have a solution on our platform. It serves everyone from the upstart disruptive direct to consumer brand for the largest consumer package goods companies on the plant.
For US brands are also economically very attractive compared to our historical customer base, let me call out a few comparisons between a branded retail customers to give you a sense of why there are so important for future.
First GMP in share of wallet in the fourth quarter same store sales on marketplaces for our brand customers grew over 30% compared with mid single digit growth for retailers and resellers. This demonstrates the brands are increasingly taking command of marketplaces as a selling channel and reflects the fact that consumers are increasingly seeking the assurance.
Authenticity that brands represent.
Second net revenue retention in 2019, our net revenue retention for brands customers was in the mid 90% range compared to close to 80% for retailers. There are several reasons. We believe this was the case.
For one brands are inherently more immune to some of the disruption that retailers on resellers faith due to the for pricing proprietary nature of their products for another there are more opportunities to expand our footprint with a brand customer overtime, leading to revenue expansion opportunities. For example in 2019, 44% of our expansion bookings Rose brands and then third.
Speaking of expansion brand customers are also generally larger in 2019 average revenue per brand customer grew 13% compared to 2018 and was 33% higher than for retailers in 2019.
Illustrate this with a real World example.
Lucky brand's there's a manufacturer that has been business since 1932.
Their mission is to delight consumers by delivering the best innovative comfortable footwear and apparel and they manufacture products under several different brands.
Rocky brands came to us in 2017 to begin their digital transformation and help grow their direct to consumer business. Initially the scope is limited to a single brand on a small number of channels, but just two years later based on exceptional results from sales growth was expanded to multiple brands added several elements of our platform like andas on advertising and drop shipping and the result, as a result the scope.
Our relationship is increased by a factor of nearly 20 times compared to where we started and rocky brands couldn't be happier.
There's nothing about customers like Rocky brand, but we don't loved and we're doubling down on customer I'd like them.
For instance in 2020 for the first time, our sales commission structure is weighted more favorably towards brand and virtually our entire product road map is based on the need to brands as well our strategic objective is to generate more than 50% of our revenues from brands by 2022, and we plan to keep you posted on the progress against this goal on a regular basis.
Turning to our indirect strategy I'm very pleased that we've announced today a strategic partnership with Shipstation, a wholly owned subsidiary of advanced Dot Com and a leading web based ecommerce shipping solution.
This partnership Shipstation will be our initial partner for launching our new offering called Channeladvisor starters.
Recall that starter additions as a lightweight version of our platform designed for smaller brands and retailers and to be distributed through channel partners. We're excited to offer shipstation customers, many of whom would be ideal customers for starters vision. The power of this new channel advisor platform through this partnership.
We anticipate the channel by their started additional launch in the second quarter of 2020, given the strong interest in starter different across our partner ecosystem, we hope to select and launched a second strategic partner for starter addition, prior to the yearend.
And you May ask why we're interested in smaller brands and retailers given that we spent the last five years moving up market. The reason is simple we believe there's a lot of market opportunity down market Shopify has able we demonstrated but it is not economical to reach that segment of the market through a direct salesforce, which historically has been our only route to market. What's different here is one we have.
Simpler product offer and too well, bringing it to market through strategic partner, who already has a base qualified customers.
This will not be run through our direct sales team and as a result, we expect our cost of customer acquisition to be dramatically lower than where we to sell this segment of the market through our direct salesforce.
Finally to our strategic pillar protecting and optimizing our core business. He clearly made great strides an improving efficiency last year as evidenced by big improvements in profitability, while discontinuing physical operations in China last year was not an easy decision at the time our results clearly shows the right decision, even though we sacrificed revenue in the process.
Turn as a percentage of revenue in 2019 fell to its lowest level from 2016 and I anticipate continued progress on this front in 2020 as we also saw a marked improvement in the first year renewal rates across our customer base.
And we made progress in addressing the sales capacity issues. We had our you asked region last year I credit portfolio GE head of our Americas sales team and our recruiting team for substantially increasing our quota carrying sales headcount as we closed out 2019.
While it will take time for these new reps to ramp and contribute to bookings and revenue growth. We enter 2020 and the dramatically improved position in terms of quota coverage and we had in 2019 and our global sales leaders are laser focused on maintaining sufficient quota coverage going forward.
As we enter 2020 I'm optimistic that we're well positioned to improve revenue growth first as I. Just described our improved sales capacity should help second I'm excited about the expected launch of starter addition, midyear through our strategic partnership with well Shipstation, We believe there's significant market opportunity with smaller customers and by working with a channel partner and hopefully we can affect.
Finally, tap a large customer base than we've historically not able to address cost effectively through our direct salesforce.
Lastly, I believe we'll see a stabilization of variable revenue because I think we have sufficiently shifted our customer base upmarket and expect to see less downward pressure on the variable percentage of GMB that we're able to earn from customers, which we refer to as take rate compression going forward. We still have some smaller customers that may gradually turn off the platform, but the amount of revenue in this segment a small enough that.
But I think we can call this chapter of our transformation substantially complete.
In 2019, we demonstrated we could drive substantial improvements in efficiency and profitability into our business without sacrificing investments in key growth initiatives.
Our focus in 2020 and for the next few years just to reignite organic revenue growth continue to expand our relationship with brand and continue to drive exciting new strategic partnerships with new offerings like starter edition.
Well the impact of these initiatives may not be immediate and bullish that were on the right path to increase our scale in a capital efficient manner due to the progress we've made and with these initiatives in place. We're now comfortable issuing a medium range target of achieving a combined year over year revenue growth rate and adjusted EBITDA margin in the range at 25% to 30% by 2000.
From 22 with that I'll turn the call over to Beth.
Thanks, David and good morning, everyone.
I'll start by pairing of you I'm marketplaces performance with marketplaces, CMV up 12% and 2019 fourth quarter marketplaces, dnbi with even better up 14% year over year and included our first ever $1 billion me every month and December Amazon continues to dominate Lucky envy.
<unk> double digits in the fourth quarter, Walmart, our third largest marketplace in terms of DMV experienced solid performance in the quarter up double digits for the first time and about two years.
Hi, which we include an hour long has continued to grow very quickly in the quarter, our integration into shopify enables our clients to leverage the channeladvisor platform can provision data for all their panels, including direct website as well as marketplace.
With hundreds of shared clients. We are encouraged to see shopify continued to grow at such Chris rapid clip.
Also we continue to watch more sellers and expanded into new countries with the land, though a leading fasten focus European marketplace. The results have been amazing with can be up more than seven finds in the fourth quarter compared to the same period last year.
The performance on Amazon Walmart and the long tail was only partially offset by GMP declined on ebay, which has some impact on our variable and strategic partner revenue in the quarter and for the year as we discussed last quarter with Amazon can be now more than doubled the size of ebay DMV and with a strong growth of our long tail marketplaces. We.
Continue to believe that you may will remain an important channel for our customers Anda, but it's important that performance should be gradually less impactful harvest health overtime.
Let me shift now to share progress, we've made and product innovation, it's been a productive quarter. We continue to advance our product when it's in building out capabilities for brand progressing on self service approaches and improving times of value from many of the corner workflows and our platform for existing customers.
Ramps can now quickly create liberal campaigns on social media using our dynamic shopping links capability and an increase click through rate for products leveraging our support for online promotion.
Our new Amazon campaigns scheduling feature saving time and money per Gram by automating the campaign Lifecycles rescheduling and by leveraging Channeladvisors analysis, the purchase behavior can automatically activate campaigns during peak hours.
We continue to expand our global network of marketplace connections across vertical by adding support where a number of new market places in the fourth quarter, including Fashion's night Crazy in the U.S. and about you and EMEA and expanded our relationship with real Gil group, who owns the brands real law and scale as they watch premium.
Lets dot com, we also added container door, a general merchandise marketplace and Asian setback.
We have continued to see success and growth with our first party Dropship program in 2019, with our first party DMD more than doubling over 2018, we enable top grocer Kroger as our first party partner and we expect to continue to add from our first party connections and the coming quarter.
Within client service there, we continuously work to improve client experience.
We implemented a new first year nurturing program focused on enabling primarily our self service clients to achieve key milestones and leveraging our software to facilitate channel expansion and optimize their business with all this program led to a fixed point improvement and the first year renewal over 2018.
In addition, we create a category focused verticals to align our E commerce expertise to specific client needs and provide more relevant insights to guide clients as they compete these changes along with successfully enabling clients to achieve their business goals have helped us improve churn and maintain contract values as our clients from here.
We believe these improvements in client experience in conjunction with our technical roadmap that plans for a significant progress and delivering on our good better best strategy of adopting technology will solidify our ability to help each client's exceed no matter, where they are in their digital journey now.
Now I'll pass the call tourists to discuss financial.
Thank you Beth and good morning, everyone a.
David and Beth have shared we've made significant progress as a company in many regards during the fourth quarter and throughout 2019.
So let's talk about how that's translated to the financials. Please bear in mind consistent with our historical practices. My comments regarding expenses will be on a non-GAAP basis.
Our results for the fourth quarter in 2019 were solid revenue was up high end of the guidance range, while adjusted EBITDA once again, well exceeded the high end of our guidance range, culminating with full year adjusted EBITDA margin more than double our 20 you'd seen result.
You also achieved another quarter of strong free cash flow and ended 2019 with a substantial improvement in free cash flow compared to 2018.
I'll take a closer look at these results total revenue was 34.8 million for the fourth quarter flat on a year over year in constant currency basis, but modestly excluding China results.
Fourth quarter fixed subscription revenue was 26.4 million, representing an increase of 3% compared to the year ago period.
Fourth quarter variable revenue was 8.4 million compared to 9.1 million for the year ago period.
The revenue mix continue to shift towards higher recurring revenue, which was largely the result of more customers moving to higher fixed speed tiers, and some of our strategic partner agreements evolving to incorporate more fixed fees instead of purely variable revenues.
Sure. It was also driven by lower ebay variable GMP.
Phil variable revenue in the fourth quarter had the best year over year results for any quarter in 2019, and we believe variable revenue would likely to stabilize going forward as we have substantially completed our transition to larger customers.
Looking at revenue on annual basis total revenue was $130 million for 2019 down 1% from 2018, but flat on a constant currency basis.
And this performance include an approximately 1.5 million dollar headwind from our China operations.
Fixed revenue increased 3% and expanded to 80% of total revenue well variable revenue declined 15%.
Now what do you know revenue by customer type brands revenue increased 19% for the full year 2019 compared to the year ago period.
And as David mentioned represented over 26% of our total revenue for 2019 up from just under 22% in 28.
As we mentioned in the past brand generally have a higher growth rate compared to retail customers as well as higher rates of expansions overall higher average revenue per customer and better retention.
Turning to revenue by product.
Marketplaces platform revenue was 25.3 million for the fourth quarter of 2% compared to the year ago period and comprise 73% of total revenue.
Marketplaces performance benefited from growth across all geographies, except China, excluding China marketplaces revenue was up 5% compared to the year ago period.
For 2019 marketplaces revenue was 95.8 million and comprised 74% of total revenue and we are encouraged to see the revenue acceleration for marketplaces in the back half of the year.
Digital marketing posted another quarter of growth with revenue of 5.7 million up 4% for the prior year period and represented about 70% of total revenue.
Consistent with the last few quarters EMIR was the main driver for growth as with Amazon Amazon advertising in the U.S.
For 2019 digital marketing revenue was 19.7 million up 4% and comprised 50% of total revenue.
Lastly revenue from our other reporting category was 3.7 million for the quarter down 19% from year ago period. As a result of onetime revenue from a particular strategic partner in the fourth quarter of 2018 that did not repeat in the fourth quarter or 29 team.
From a geographic perspective revenue from U.S. declined 1% in the quarter. However, international revenue increased 5% to 23% of total revenue in the quarter driven by double digit growth in EMEA, and Australia offset by declines in China.
As a customer details we expanded relationships with some notable clients in the quarter such as blend jewelry or you don't T shirts, you luxury full beauty render accessories rocky brands and route Gilts group.
Expansions, which are an important growth driver in our business are not reflected in customer count, which exemplifies that the customer tell metric is becoming less meaningful to gauge our overall performance.
We ended the year with just over 2600 customers customer count for the fourth quarter and full year 2019 was impacted by churn of smaller retail customers and runoff from our China region. Following the closure of our office there in July 2019.
This mix shift is highlighted by the improvement in total average revenue per customer, which increased 3.5% year over year to nearly $48000 for 2019.
And notably the size of new customer deals increased approximately 30% on both the sequential quarterly and year over year basis.
Adjusted EBITDA improved substantially to 9.4 million for the quarter compared to 5.4 million in the prior year period.
Represent nearly 1200 basis point increase and adjusted EBITDA margin for 27%. These results include improvements across all reported expense line items during the quarter.
For the year adjusted EBITDA improvement was even more substantial 2019, adjusted EBITDA was 20.2 million more than double the 9.8 million reported in the prior year period, and representing an adjusted EBITDA margin of 15.5% again with improvements across all reported expense line items.
GAAP net income also experienced significant improvement coming in at 5.4 million for the quarter compared to a net loss of 600000 in the prior year period.
Were 3.5 million for 2019 compared to a net loss of 7.6 million in 2018.
This strong improvement in adjusted EBITDA and GAAP net income was a direct result of our strict cost discipline and our reorganization in July 2019.
Which was aimed at reallocating capital capital to make investments in sales services and support to enable the return to topline growth in the U.S. and further strengthen our international operations.
Turning to the balance sheet, we finished the year with strong results.
Cash and cash equivalents were 51.8 million up 3.5 million during the quarter and 4.6 million for the year and this includes 1.4 million of payments related to the July 2019 reorganization.
Free cash flow was 4.5 million for the quarter and 9.3 million for the year, marking a substantial annual improvement of $11 million from 2018.
So that was up 2019, let's talk about expectations over the upcoming year.
As other business has and will continue to evolve we want to be sure that we providing information on metrics that align with our objectives and offer insight that arden relevant to our operations and the understanding of our overall business. As a result, we plan to make some changes to metrics, we provide starting in the first quarter of 2020.
Specifically, we do not plan to disclose total annual GMP going forward, because an increasing portion of our business is tied to GM is not tied to GMB, especially in digital marketing where to buy and in our bundled platform arrangements for digital marketing in particular most of my revenue is now tied to outspend and thus we have less visibility.
The GMT meeting, our GMP metric could be 72 under reporting.
Also we do not plan to disclose total customer count or average revenue per customer for our total customer base going forward because increasingly many of our customers our brands, where significant expansion opportunities and do not add to customer count, making the number of customers less relevant to an evaluation of our overall performance.
Furthermore, we believe the introduction of starter edition, which is geared towards smaller customers at a lower price point, we'll also render this metric less meaningful going forward.
However, we will begin to report on a regular basis the percentage of our revenues generated from brands on a trailing 12 month basis to help you gave the pace at which we are moving towards this more strategic customer segment overtime.
Now, let's discuss guidance.
And two in 2020 as David said, we believe we are well positioned to drive improvements in revenue growth based on the initiatives underway.
At the same time, the magnitude and timing of those initiatives is difficult to predict whether it's the ramping up sales head count. The initial traction of starter division that is expected to launch through a strategic partner in the second quarter or the stabilization and variable revenue performance we anticipate.
And while we think is small it's a smaller part of our business. It remains a meaningful part and we anticipate continued headwinds free bay for the foreseeable future.
For those reasons rather than establish a full year revenue range. We are establishing only an expected revenue for with which we are quite comfortable and we'll work towards increasing it incrementally as the year progresses.
On the expense side, we expect to continue to make investments in sales and marketing to fund the expansion of us sales capacity as well as additional marketing events to promote customer strategic partnership growth.
We also plan to continue to invest in R&D to enhance our product offering with a specific focused on supporting our current brands customer base as well as acquiring new brands customers.
As a result for the first quarter of 2020, we're issuing revenue guidance in the range of 31.3 million to 31.7 million and adjusted EBITDA in the range of four to 4.5 million.
For the full year 2020, we're issuing revenue guidance of a minimum of $130 million with potential upside depending on how quickly the various initiatives outlined above take hold.
We are issuing adjusted EBITDA of a minimum of $20 million with potential upside based on higher than guided topline growth.
Looking further ahead I wanted to touch on David's comment about our long term goal of a combined year over year revenue growth rate and adjusted EBITDA margin range of 25% to 30% by 2022.
We aim to achieve achieved this objective through a balance of both revenue growth and profitability with a focus on continuing to shift towards brands newer product offerings. Like starter addition, and the incremental revenue opportunity from indirect channels with its more cost efficient model initiatives to continue to reduce customer churn.
And continued strict cost discipline.
In closing, we're pleased with the improved profitability cash flow and overall efficiency to we delivered 29 team.
And believe we have built a strong foundation for a return to revenue growth.
We enter 2020 enthusiastic in particular about strategic pillar focus on winning in the brand segment and leveraging indirect channels as highlighted earlier on the call. We believe we have the right strategy people and processes to execute on our objectives of balance growth and profitability over the coming years.
With that operator, we'd like to now open the call to questions.
As a reminder to ask a question you will need a press star one on your telephone to withdraw your question press. The pound key please standby will be compiled the Q1 a roster.
Our first question comes from Matt I'll with William Blair. Your line is how often.
Hey, guys. Thanks for taking my questions.
One of the start of first on the starter addition, maybe you can just give us some more detail on how you're thinking about the potential revenue contribution from that product in 2020 cannot be meaningful or is there something that's going to take a year or sort of ramp of.
Hey, Matt This is David obviously, we're not sharing any specific numbers at this point I.
I think it's got a lot of potential I think it's really going to depend on.
How quickly how quickly we launch.
And how effectively the up out that to the uptake is across across the customer base in working with the people over shipstation. So.
Yes. So at this point I think that's part of the reason that we're we're not providing a range, we're just providing a floor.
We obviously expect that it could contribute something but how big it is for 2020, we'll we'll just have to say.
Okay, and then on some of the U.S. business and the hiring you've done there do you expect that business to return to growth and 2020 from that hiring or how long should we expect those reps there were higher at the end of 2019 to start to contribute to revenue growth.
Yeah.
Thanks, Matt So obviously, we're not guiding to specific geographies.
A lot of that hiring really the bulk of that hiring was in.
November and December and we actually still continue to hire for a few remaining positions.
As you would expect it takes.
I think we said the past typically six months or so for reps to ramp.
And so it'll it'll take that period of time for them to ramp and start to contribute to bookings then ultimately that takes time for those bookings to turn into revenue. So.
I do expect that will spend most of this year gearing up for of bookings improvement in the us.
You know how quickly they ramp it how much they contribute is obviously still to be determined so for that reason were.
Another reason why we're providing floor on the revenue side and hopefully some upside as as we start to see results from from this new cohort of reps.
Okay, Great and then last question for me just back to the starter addition, you already have a handful of channel partners that you work with so maybe just help us understand why the starter addition is initially just being launched with Shipstation and how come some of these other channel partners aren't going to be.
So I know starter addition, initially.
Yeah, well as as the as I said in my.
Remarks, we have a number of interested parties in starter addition, in our partner ecosystem I would expect that we would launch another partner before the end of the year. So was actually quite a lot of interest in it but given that this is a new product initiatives.
Part of part of what I think as import understand is that each partner.
It has some specific needs as far as how this product will be rolled out. So for example in a logistics space. There may be some preferences for what kinds of shipping partners are carriers are included if you look at other types of partners. They might have preferences around what kind of channels are supported and it's a flexible platform, but we decided to focus on one initial partner that weve.
Worked with closely for many years in Shipstation.
We understand each other's businesses really well and work well together for a long time.
And our collective view is that there's a really good fit between what we can bring to the table and ship stations customers. So so this just felt like a good place to start but I would expect us to expand the park Oscar.
Fairly aggressively once we get going.
Okay got it that's it for me thanks for taking my questions guys.
Thanks, Matt.
Thank you. Our next question comes from Ryan Macdonald with Needham. Your line is now open.
Hi, good morning, Thanks for taking my questions I guess, just double clicking a bit on the the partnership with Shipstation can you provide a little bit more color about maybe some of the mechanics of the partnership is this more of a referral agreement or or how is the incentivization going to look like for Shipstation to be getting started addition into the marketplace.
Yes, so obviously I'm not going into the specific numbers or anything like that but I would look at this as a co marketing and referral agreement, where it will be our our capabilities to market of in conjunction with Shipstation marketing to prospects that we think would be inappropriate fits collectively for this for this product.
And obviously expect to to deliver some integration synergies as well between our platform and Shipstation and again, we've we've worked with Shipstation for many many years, we have a lot of mutual customers already on our core platform. So.
So this is really about bringing.
The power of Channeladvisor in a in an easier to use.
Package for customers that might not be at the at the scale and scope that that would make them ready for our core platform.
Excellent and then when you launch starter addition in second quarter do you intend to from et cetera, an uneven efforts at all on migrating some of the existing customer base to start or addition, perhaps customers that are at the lower end of the segment to try to reduce churn off at that level of the business.
Yes, we certainly expected that there'll be an opportunity to do that I don't know that that we're going to have Oh, you know a prospective program to to go out and proactively to customers, but we know that customers that are selling below certain threshold have a higher propensity to churn and historically, we haven't had an option to offer them right and so well.
Started addition, we will and I would it I would expect that we'll be able to provide a migration path to to customers, who want to bounce shifts to a smaller platform. So at least Opportunistically I think the answer is yes.
Hi, excellent and then just one more for me and we've now started this year that some of the changes with the to laws in California around programmatic advertising advertising and targeted advertising are starting to have impact on on pricing rates within digital advertising are you seeing the impact that all of this in the.
Digital marketing segment and and have you are there any I guess impact to the guidance or how we look about look at 2020 associated with that thanks.
No we really haven't seen any change in pricing dynamics. We we provide for example, a lot of feed services that power things like Retargeting campaigns, but we don't do we targeting ourselves we're not.
We're not tracking cookies by and large anymore like we did years and years ago, when we were using and primarily retribution and GMB tracking.
So were to think of us more as as plumbing and data conduits right. So were less than the business of.
Things that would be affected in my view by not only GDPR, but CCP as well.
Thanks very much.
Thanks Ryan.
Thank you. Our next question comes from Thomas Forte D.A. Davidson. Your line is now open.
Hi, guys. Thank you for taking my questions. You, obviously have touched on brand throughout the call and acknowledging it's a achieved and growing customer segment.
And I know you guys had mentioned that kind of rapidly developing and then.
It's a little further visibility, maybe it's not as clear but.
Could you guys touched on some of the initiatives that are really driving long term growth amongst.
No the key.
Customer segment, and then secondly, the or any growth in the direct sales force that's on those brands.
Thank you.
Yeah, Hey, Tom This is David So I think I think really the initiatives pervade pervade the entire company right. So there are specific.
Virtually everything in our product roadmap and I think I said this in my prepared remarks is focused on brands rights in the very first question. We ask ourselves when we are evaluating a capability or feature or whatever.
His first and foremost as if something is going to advance our capabilities with with brands, but its important remember that our entire platform already has applicability towards brands right. So as I mentioned in the in the prepared remarks.
Everything from Amazon advertising digital marketing as they've got a transactional website to first part in third party and Dropshipping I mean, there's there's.
There's really nothing in our platform per se that a brand couldnt make use of depending where they are there and their lifecycle. So we continue to invest.
Really the bulk of of our R&D resources and continuing to advance the ball there.
And as I also mentioned in the call for the first time. This year were Stratifying, our sales commission structure to focus on.
The focus more on brands.
And to your point about direct sales, we don't segment our sales team.
By customer segment.
It's something that we've thought about and considered and continue to evaluate but for the time being our entire sales team.
It's still able to sell to both brands and retailers, we tend to segment more based on on size and territory as opposed to customer type, but like I said, we do we do anticipate that the change in sales commission structure should.
Should should drive some degree of change in behavior and focus on brands going forward.
Got it thank you very much.
Thanks.
Thank you as a reminder, ladies and gentlemen that Star then one to ask a question.
Your next question comes from Zach Cummins with B. Riley FBR. Your line is now.
Hi, good morning, Thanks for taking my questions.
I guess just in terms of the longer term initiatives.
Really focusing on brands can you can you talk about some of the I guess some necessary actions to really accelerate your exposure to brands from I guess kind of the just over 25% this year to getting closer to that 50% target by the end of 2022.
Yes, Thanks, Zack I think I think to some extent the market is coming to US right. So if you looked at the progression of brands revenue or bookings or just even things like net revenue retention.
All of the all the changes we've seen in our business have have really been happening.
In the absence of us having a specific for example sales focus in terms of in terms of commission structure et cetera. So.
I think some other things we're doing now that are more deliberately leaning into the trend that's already there in the market.
Should support should support those trends if not if not accelerate them. So I think it's frankly.
Secular shift that's just going on as a multiyear shift going on in the industry.
And I think we're just on a very good position to to capture it. So obviously it starts with products and making sure that everything that we do continues to expand our appeal to two brands on a global basis.
And everything springs from that ultimately there I think there's some additional things that we can consider that we haven't get implemented around service level differentiation for example, looking at different customer segments.
And how we can ensure that the brands continued to grow and expand with US. If you look at as I mentioned on the call you know the strong net revenue retention, we have with brands compared to retailers. It justifies potentially a high level of service and touch and today, we don't necessarily distinguish a customer segments in our in our service offerings. So that's the type of.
So we're looking at going forward.
Got it that's helpful and for rich in terms of the I guess adjusted EBITDA guidance for this upcoming year. The floor that you put out there is actually a little bit lower year over year versus the the number achieved here in 2019 can you talk about some of the investments that maybe you're considering that could be I guess be a little bit of a headwind to potential margin expire.
Some here and Tony Tony.
Yes, sure good morning back so I again want to stress. The fact that the guidance that we put out there is a floor and we do anticipate.
As the year progresses.
Walking at up as as possible with various initiatives, we have going on so you drive topline growth.
With regards to expense savings, we mentioned after our Q2 call that we expected around $5 million of net savings recognized.
Talking about 2 million of that in 2019.
That that additional $3 million there we will continue to focus on on growing our U.S salesforce to support.
Growth in the us geography.
Marketing efforts as I mentioned also in my prepared remarks, but also some investments in our product to be focused on our our brands customers, maintaining those customers and driving improved results to support the brands initiatives. So.
Those are the three areas I would say that were much more focused on.
Got it that's helpful. Thanks, again for taking my questions and best of luck in 2020.
Thanks.
Thank you. Our next question comes from David Gearhart with first analysis. Your line is now open.
Hi, Good morning. Thank you for taking my questions. My first question I just wanted to ask about bookings qualitatively I know that you made some late end of year hirings and the U.S. and those are still the ramp but I just wanted to double check if you could give us some sense of what bookings looks like either in the U.S. or in aggregate for the company Directionally or.
Are we seeing an increase in bookings year over year anything you could provide would be helpful. Thank you.
Yes. Thank you David this is David as well so I think what I would say is that on a net basis. When we look at net bookings progression from 2018 to 2019.
We did make progress I felt good about that obviously, that's a little bit of a noisy metric with with China and the mix as as we discontinued China, obviously as you'd expect this I'll turn to pick up and obviously bookings go down in China, but overall felt good about the progress made in two.
2018 to 2019.
But we need to do more right. So in the us in particular.
We still have some pressures last year and obviously the hiring that we did as at the end of the year.
Is this was not something that we expected margin. It did it contribute meaningfully to bookings in the in the calendar year. So I think in the U.S. It really was all about sales headcount capacity in quota coverage and as I said in my remarks, I feel like we've entered 2020 at a much better position relative to our plan.
Then we Oh, we had last year.
Okay, and then lastly from me you talked about variable revenue and its stabilizing I mean looking at the year over year progression. It is improving but we're still in high single digits as a percentage of revenue excuse me high single digit decline year over year for Q4.
What gives you the confidence that it's stabilizing and.
At what point do you think it will actually be stable on a year over year basis can you give us some sense of what quarter or how we should kind of look at that for for modeling purposes. Thank you.
Yes Fair question, obviously, we pay close attention to pricing trends and GMB trends in what we're seeing in our business over the course of 2019.
And it's a little bit of an art right because variable can be somewhat hard to predict but as we as we project forward some of those pricing trends and contract trends and GMB trends believe when we look at them Holistically give us confidence that we should see some stabilization that what quarter, that's very difficult to predict and exactly what that trajectory looks like is difficult to predict which is which.
Again, a reason why we're providing a revenue floor for the year as opposed to a.
Two or to a full range, so but looking at what I would call the leading indicators going into 2020.
I have increased confidence that but that at that trend line should continue now there's a little bit of noise in there as well on partner revenue and so I don't want to suggest that there may not be headquarter aware that potentially dips down from a from a prior quarter. That's that's possible that we've seen that kind of behavior.
Just in terms of historical partner revenue, but in aggregate I feel like the timeline should continue to improve as the year olds roles. All good. Thanks for the color that's it for me.
Great. Thank you.
Thank you.
Not showing any further questions at this time I would not look to turn the call back over to Tracy mentioned for any closing remarks.
Well. Thank you everyone for joining us this morning in for your continued support we look forward to speaking with you again soon.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
[music].