Q2 2020 ChannelAdvisor Corp Earnings Call

Ladies and gentlemen, thank you for sending bind to the Channeladvisor second quarter 2020 earnings conference call.

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If you acquire any further assistance. Please press star zero I when I like the hand, the call first your speaker today Raiford Garrabrant director of Investor Relations. Please go ahead Sir.

Thank you Victor.

Good morning, and welcome to Channeladvisors Conference call for the second quarter 2020.

My name is raiford Garrabrant director of Investor Relations.

With me on the call today, our David Spitz, Channeladvisors, Chief Executive Officer.

That's a govia channeladvisors chief operating officer.

Enriched Cornell Channeladvisors Chief Financial Officer.

This morning, we issued a press release with details on our second quarter 2020 performance.

As well as our outlook for the third quarter 2020.

This press release can be accessed on the Investor Relations section number website.

Our dot Channeladvisor dot com.

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

During today's call, we will make statements related to our business maybe considered forward looking under federal Securities laws.

They must reflect our views only as of today and should not be considered representative of our views as of any subsequent date.

We disclaim any obligation to update any forward looking statements or outlook.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

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

Further discussion material risks and other important factors that could affect our actual results. Please refer to those contained in our most recent form 10-K, and 10-Q as well as our other filings which are available on the FCC web site at MCC 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.

For 2020, only acquisition cost for the acquisition aboard.

And the related measure adjusted EBITDA margin.

She is calculated as adjusted EBITDA divided by our revenue.

Our press release issued today includes GAAP to 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 provide a GAAP to non-GAAP reconciliation schedule in our supplemental financial presentation posted on the Investor Relations section of website.

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 or our quarterly results.

Please be advised that we may or may not continue to provide this additional detail in the future.

With that let me turn the call over to David for his prepared remarks.

Good morning, everyone and thank you Ray for.

Our second quarter was one for the record books as the covert 19 pandemic dramatically altered consumer behavior and shifted a significant amount of consumer spending online.

We drove well over $1 billion in GMB in each month of the second quarter for customers well in excess of the most recent fourth quarter, yielding a substantial uptick in variable revenue and driving record quarterly revenues of 37.4 million up 17% from the same period last year and substantially above our initial guidance for the quarter.

In addition, the scalability of our business model was on full display as virtually all of that revenue upside fell to the bottom line, resulting in record quarterly adjusted EBITDA 11 point Sixmillion nearly double our initial guidance for the quarter.

I'd like to express my gratitude to all of our team members, who despite facing the disruption of adapting to working remotely provided steady hands and helped our customers navigate this unusual period.

Our systems and our people handle this unexpected surgeon volume flawlessly and once again highlighted what customers to choose channeladvisor as their strategic ecommerce partner.

Our continued strong cash flow also bolstered our balance sheet and gave us the opportunity to make strategic growth investments in particular, we announced on July 23rd the acquisition of Blue Board, a leading analytics platform for brands dozens of leading global brands, including L'oreal, Samsung and Newell brands rely onboard to provide them.

Real time actionable insights into how their products are performing across a variety of digital channels and this is a perfect complement to our platform as we continue to expand and enhance our capabilities for brands.

We believe that by deploying Laborde now known as Channeladvisor brand analytics across our global sales team, we can significantly accelerate this position in the market and draw more brands to our platform.

We remain committed to running our business in a financially disciplined manner into maintaining a strong balance sheet.

Our upfront cash outlay to acquire Billboard was $9 million, most of which was covered by our cash generation in the second quarter.

Despite an uncertain environment, our strong financial position profitability and cash flow have allowed us to react rationally and thoughtfully to rapidly evolving circumstances and lean into the situation, which has paid off for example, while some of our competitors were forced to reduce staff in the second quarter, we invested in additional sales and services headcount.

In the spirit of enhancing our financial flexibility. We also announced this morning, a $25 million credit facility to bolster liquidity.

I want to be very clear that we do not currently have any plans drawn this facility.

However, given our financial strength the cost of this facility is minimal and gives us additional liquidity should the need a rise in the future. We believe the best time to enhance liquidity is when you don't need it and that's exactly what we've done.

And rich will provide more details in his prepared remarks.

Turning to sales I'm pleased to report that bookings in the second quarter were up 45% compared to the first quarter, reflecting healthy demand for our solutions and the ramping of our recently expanded U.S. sales team and representing a solid rebound coming off the covert related disruptions. We saw in the last couple of weeks of March.

We've enjoyed continued strong interest in our solution from brands and retailers as E. Commerce has become even more important in fact pipeline generation in the second quarter was the best we've seen in several quarters, and we added new brands, including Tempur Sealy and Bush now and enjoyed near record expansion bookings with existing customers like a six.

Additionally, revenue retention was better than we expected in the second quarter, even factoring in the roughly $1 million uncovered related relief, we offered to customers facing distress or disruption early in the quarter.

So in addition to the strong ecommerce volumes, we saw in the second quarter propelling our financial results were pleased to have also enjoyed solid execution as well and we are bullish that we're well positioned for the back half of 2020.

As we think about the outlook for E commerce going forward forecasting remains difficult.

In the near term, we expect ecommerce volumes to remain elevated although perhaps moderated somewhat from what we experienced in the second quarter.

In July we again saw marketplace GMP exceed $1 billion, an eclipse December 2019 levels, our fourth such consecutive month, although down about 8% compared to the average monthly BNP levels, we saw in the second quarter.

However, despite this modest deceleration compare to the second quarter, we still saw average daily GMB well above pre covered levels through the month July.

Comparison July GMB was up 40% compared to July 2019, even though Amazon Prime day occurred in July last year, and it's been postponed this year.

Whether this strengthened GMB. We saw in July continues into August and September is difficult to predict.

And with potential new flare ups of coated 19, and various geographic regions and continued macroeconomic uncertainty remains difficult to know how things will play out over the next few months, particularly the fourth quarter, but.

For these reasons, we're going to stick with shorter term floor guidance for the time being.

Longer term many industry analysts have taken the position that heightened be Congress penetration is likely to remain permanent as consumer behaviors and shopping habits have shifted online.

Essentially that several years of ecommerce trends have been pulled forward to the present.

We agree with this assessment and believe we're well positioned to benefit from these trends.

Lastly, I'd like to take the opportunity comment on our diversity equity in inclusion efforts.

General Visor has a long fostered a culture of inclusion based on merit and results, but recent events caused us to reflect and consider what more we could be doing to advance the causes of diversity equity inclusion.

We began by hosting seven hourlong listening sessions with various employee groups, which I found both inspiring and eye opening.

We've since launched internal task force and several initiatives to make a long term impact on diversity, a channeladvisor and in supporting related social causes such as recruiting at historically black colleges and universities.

Plummeting blind resumes enhancing anti bias training throughout the organization and making election day, a paid holiday in the U.S.

We have more work to do what are committed to doing our part and supporting an advocating for social and economic justice for all people because we believe it is not only moral to do so but that it also good for business.

In conclusion I'd like to offer a warm welcome to our newest team members from Blue Board and our newest location in Paris and to thank our employees and customers once again for helping us to achieve exceptional results in the second quarter.

With that I'll turn it over to best.

Thank you David and good morning, everyone.

In addition to the very strong financial results, we delivered in Q2 I'd like to walk you through the progress we've made across our strategic pillars.

Our first strategic pillar is to win in the brand segment.

This pandemic has illustrated brands are generally more resilient and better position than retailers when it comes to the shift to digital channel.

And tend to exhibit better unit economics for as they have overall higher average revenue per customer higher rates of expansion and better retention then retailer.

We believe brand our strategic customer segment for us and our objective is to grow and expand our brand customer sign that thing and offering solutions that address more are there any.

As David mentioned earlier with the acquisition of Blue Board. We are now able to provide brands more of the E Commerce intelligence, they need to gain a competitive edge online and increased sales.

Loop Board analytics platform monitors products across thousands of online retailers in marketplaces worldwide in near real time.

The platform provides actionable insights including pricing trends.

Absent product availability in content customer satisfaction issues share of search results and areas to improve merchandising these capabilities enable our customers to understand market trends protect their reputation and optimize their ecommerce strategies to help drive profitable growth.

The board has already achieved success selling to promote brand in fact flu board help polar a leading smart watch brands driving meaningful increase in direct sales on Amazon.

And help l'oreal increased their share of the digital shelf life double digits.

Adding this compelling functionality to the suite of products offered by our global sell for we see a tremendous opportunity to expand relationships with existing brands customers and attract new brands to our platform.

In Q2, we also delivered strong innovation within our platform for brand. We continued to add features that support client success with technology to help improve seller efficiency reduce cost and drive successful outcome.

Recently released add to performance rules for Amazon advertising to allow sellers the advertise on Amazon to easily evaluate low performing sponsored campaign, helping to save time and drive AD spend efficiency.

For our where to buy solution, we now support add card on additional retailers, including Instacart dollar general and target plot.

In terms of fulfillment, we've added more international options with Amazon Global Express supporting International shipping labels for U.S. product and also support for the Amazon shipping program in the UK.

Our focus on brands has allowed us to recently land Hugo boss as a new client and in Q2, we expanded our relationship with Ace X. I go to sport footwear brand for millions of consumers worldwide.

If you haven't seen it already please check out the a six case study on our website, which illustrates the power of our platform.

Realizing that the direct to consumer shopping journey doesn't stop at the company website, a six engage channeladvisor to leverage our expertise and marketplaces and digital marketing.

Helping a six seamlessly increase the number of marketplaces served with only part of the story.

Given the number of sellers competing on these market places, it's essential to take steps to find to attract engage the target can customer.

That's where our long history of adding value and digital marketing comes and by tapping into our multitude of competencies a six reports they were able to increase sales year over year by over 70% and push return on AD spend to record levels for them, all while making the overwhelming field manageable.

Fixed has a great example of how our initial success with the brands can lead to substantial expansion overtime.

Our second strategic pillar is to leverage indirect channel to expand our reach and drive incremental revenue stream.

I'm happy to report that we made our starter edition product generally available in late may to customers of our go to market partnership station.

With this release, we now have a product that allows us to acquire on mine multichannel salary as much earlier in their ecommerce journey with a low touch and self service customer acquisition and support model.

Prospect marketing and engagement is actively underway in collaboration with Shipstation. While it's early yet initial customers have been positive about the product and its applicability and helping them manage their smaller multi channel sales operation.

Our third strategic pillar is to optimize our core business, which is centered around improving the efficiency of our operations, while continuing to invest and enhancing our leadership in E Commerce.

During the quarter.

Our scale, what's on display as we wrote to the occasion of three consecutive month of holiday like volumes without a hitch all while working from home.

This doesn't happen by accident, but as a result at the substantial investment we have made and research and development and operations every year to develop and continuously improve our technology infrastructure to enable it to scale effectively and efficiently to meet the ever growing needs of our clients.

Something else that I'm, particularly proud of is that during this period of unprecedented volume. Our team continued to move full speed ahead on new features new channels, you I improvement process changes infrastructure upgrades and many other projects we would normally avoid deploying during the busiest weeks if Q4.

In fact, since we started working from home our engineers have deployed dozens of code changes per day on average and the process has been re engineered to help eliminate impacts on our customer.

We added eight new market places in the quarter, including a found in Germany, and Austria, Austria outlets for men in the UK and premium outlets in the United States.

Oh, so while our dropship network with setting New records from monthly G.M.D., we added several new retailers to our network, including Staples coal Nautica and dollar general.

In addition, we remain committed to making our platform easier to use and have deployed significant usability upgrade to two of our most critical and widely used features channel mapping and order management, which are designed to help sellers lift products faster with fewer errors and improved the speed of order fulfillment.

At the same time, we've continued to work with our customers to develop strategies and a steady flow of content to enable their success and this unprecedented time.

From Webinars on topics like marketplace expansion and this new era to blog posts addressing how brands can create meaningful connections with online consumer tipped cheats covering ways to adapt your online advertising during the covert 19 crisis, we're going the extra mile to help our customers and prospects navigate this challenging environment.

As David mentioned G.M.B. strength was broad based with growth on our major trading partners like Amazon ebay and Shopify inline with their recently reported result.

We know that particular strength on Walmart as her E commerce offerings continue to evolve as well as continued strong growth on our long tail of marketplaces like target for us and Atlanta.

To summarize this is a very exciting time at Channeladvisor. Our business has performed we have continued to deliver strong technology innovation and we are actively shaping the strategies our clients execute to help drive positive outcomes for their businesses I'm proud of how the team has risen to the occasion in response to this.

Good level of activity.

Based on the strength of our offering and the positive trends in the market I continue to be optimistic about the opportunity in front of.

With that I'll pass it to rich now to provide a more detailed update on our financial performance rich.

Thank you Beth and good morning, everyone.

Second quarter of 2020 was certainly start quarter for our company.

The tremendous financial results, we achieved surpass previous records and significantly exceeded the guidance we provided in may.

Demonstrating the scalability of our business model.

We mentioned on our Q1 earnings call that a GMB trends at the start of Q2 were to continue we could see variable revenue results that compare to our seasonal Q4 performance.

Second quarter now behind Us, it's clear that JV trends and variable revenues are exceeded our expectations.

So let me provide a little color on these apps and results for the second quarter.

Please bear in mind, consisting with our historical practices my comments regarding expenses and net income will be on a non-GAAP basis.

Both revenue and adjusted EBITDA were significantly above our for guidance for this quarter and along with operating and free cash flow reached all time highs during that period.

As David mentioned earlier cash generation into Q2 covered most of our upfront cash outlay for our acquisition of Blue.

And this cash generation didn't come at the expense of accounts payable either.

We remain encouraged with our vendors. Unlike many other businesses, who stretched payables to conserve cash a true testament to our strong balance sheet and operating model.

Taking a closer look at these results.

Total revenue was $37.4 million for the second quarter over 17% year over year end up 18% on a constant currency basis as well as excluding our China operations, which we discontinued in July 2019.

Variable revenue during the quarter was the primary contributor to these strong results, which totaled $11.7 million, representing an increase at 8% from the year ago period.

This was driven by sustained and broad based growth in GMB as E commerce spending remained elevated throughout the quarter.

Fixers Shunshun revenue was 25.7 million for the second quarter.

Coupled with our strong variable revenue results.

We are encouraged by the improvement we have seen in net bookings performance during the quarter.

Equally in the U.S.

As the investments we've made in expanding our sales organization over the past few quarters starting to contribute to these results.

Looking at revenue by customer type, which we looked at on a trailing 12 month basis.

Brands revenue for the 12 months ended June Thirtyth, 2020 increased 19% compared to the year ago period and represented 31% of our total revenue for the period ends up from 27% from the five year period.

We remain very pleased with this continued shift towards brands as.

This pandemic has illustrated brands are generally more resilient and better position retailers when it comes to the shift to digital channels, whereas retailers are faced with store closures and other structural challenges.

Our strategic focus on brands with a driving force behind our acquisition of Blue bar and the investments we've made in our platform to support our brands customers have been paying off during this crucial time of ecommerce demand.

Retailer revenue for the 12 months ended June Thirtyth 2020 represented 63% of our total revenue for the period compared to 67% for the prior year period.

From a geographic perspective revenue from the U.S. increased approximately 20% in the quarter.

Representing the second consecutive quarter of revenue growth in the U.S. after a few quarters of modest declines.

This growth is primarily result of the strong variable revenue performance.

Mentioned above.

Since we've made in the U.S. sales organization over the last few quarters have started to contribute to growth as well.

Many of them to shells reps that we've hired in the U.S. are still progressing through training and ramp and we anticipate their productivity to start contributing to our results more meaningfully in the coming quarters.

International revenue increased 10%, excluding China results also driven by strong variable revenue results.

Adjusted EBITDA, almost quadrupled to 11.6 million for the quarter compared to 3 million in the prior year period.

Generating adjusted EBITDA margin of nearly 30%.

In addition to the strong revenue performance during the quarter. These results include improvements across all reported expense line items.

It is important to note that our adjusted EBITDA results for the second core worst strengthened by approximately $1.3 million of expense savings related to the cobot 19 pandemic with the biggest driver speaking the elimination of business travel and a reduction in trade show and facilities costs.

Some of our improved profitability is attributable to factors, we would not expect to continue under a more normal operating environment.

Further adjusted EBITDA for the trailing 12 month period ended June Thirtyth 2020 totaled $32.6 million, highlighting our continued commitment and ability to manage expenses and drive profitable growth.

In addition, non-GAAP net income experienced significant improvement coming in at 9.8 billion for the quarter compared to 1.5 million in the prior year period.

Resulting in non-GAAP earnings of 33 cents per diluted share compared to five cents per diluted share in Q2 19.

This strong performance.

This strong improvement in adjusted EBITDA and non-GAAP net income was a direct result of our revenue growth ongoing cost discipline and our reorganization in July 29 team, which was aimed at reallocating capital to better align investments in sales services and support to enable a return to topline growth in the U.S.

And further strengthen our international operations.

Turning to the balance sheet consistent with our strong PML performance, Kevin crash equivalents were 63.9 million.

56.4 million in Q1, representing record cash generation of $7.5 billion during the quarter.

Free cash flow was $6.7 million for the quarter.

Good morning substantial improvement of approximately $4.5 million from the prior year period.

Despite the current economic environment I'm pleased to report that cash collections remain strong throughout the second quarter.

Lastly, we announced this morning that we have entered into a three year 25 billion dollar revolving credit facility, which includes a 10 million dollar accordion feature.

Other material terms and conditions have been summarizing our form 10-Q filed this morning.

As David said, well, we have no current plans to draw. This facility. It provides us with additional liquidity and flexibility at an attractive cost and so we believe it makes sense to have added as to our financial pool box.

Now, let's discuss our financial outlook.

Similar to last quarter, there remains a significant amount of uncertainty caused by the covert lysine pandemic, which makes forecasting the remainder of the year very difficult, particularly with regards to GMB and variable revenue.

We simply cannot predict how long will extend dnbi levels may remain elevated and benefit our reserve revenues.

Excellent third quarter 2020.

Some visibility you guys for potential financial outlook, but again it is more limited unusual.

July GMB and variable revenues remained elevated over pre cobot results.

Although slightly lower than the levels, we saw in Q2.

One of these trends remain stable increase or decrease as we go through August and September is difficult to say considering the myriad of factors affecting the economy and consumer shopping habits.

As such we're once again issuing a guidance war for revenue and adjusted EBITDA in Q3 up $34 million and $6.5 million respectively.

Although we anticipate GMB levels and variable revenue performance to decelerate relative to what to what we saw in Q2. If July trends were to continue throughout Q3, we could see variable revenue results comparable to or in excess of our most recent Q4 performance.

Despite more limited revenue visibility in the short term, we believe the strength of our balance sheet and profitability of our business model provides us with a means to maintain our strategic focus even during a global pandemic as we have shown more recently with the acquisition of Blue bar.

And finally, the last few months I've really been exciting here, a channeladvisor with record setting results our acquisition of Blue Board. The general releases Foreigner addition.

We've made to our diversity equity in inclusion initiative, we have much to recognize it'd be proud of.

On behalf of our senior leadership team I want to extend our appreciation to our employees for their resilience and dedication during these unprecedented times our customers for having the confidence in our platform to support their ecommerce objectives. When there's never been at time of more dependent on E Commerce and of course, our shareholders for your support.

We're incredibly excited about the future of E Commerce, and our leading platform has been designed to support increased ecommerce demand for the months and years to come.

I'll now pass the call back to David for some final remarks.

Thanks, Rich I'm proud of our team for handling the last few months was incredible professionalism and such a strong focus on our customers. We know we're fortunate to be in the right place at the right time. During this pandemic as it relates to E commerce, and though near term visibility is limited our mission to connect and optimize the world's commerce is intact and as relevant as ever and with that operator.

I'd now like to open the call to questions.

As a reminder, ladies and gentleman asked a question you want me to star one linger telephone.

To address your question press the pound Keith.

Please standby when we compare the Kennedy Wilson.

My first question will come from line of Colin Sebastian Baird you may begin.

Thanks, and good morning, everyone, Hi, David or Beth I question on the sales pipeline in backlog I guess I'm wondering how we should think about a this impacting the trend in subscription revenues as we were looking ahead.

And beyond the clearest obviously for on the variable revenue contribution side.

And rich based on the commentary around July strengths and GMB with some moderation I'm wondering what you would have to see in August and September.

To hit the Q3 floor with respect to variable revenues. Thanks.

Hey causes David.

As it relates to pipeline and backlog I.

I would expect it to to start to benefit.

More fixed and recurring revenues in the in the quarters to come.

You know as you know we had a bit of a disruption at the end of Q1 in the last two weeks just kind of covered related as deals slipped and got pushed so a little bit of a little bit of a lag effect from that I would say is something that we're seeing now but.

The other thing that's a that's a factor that I'm really pleased with is is the hiring that we've made over the last nine months and even you know even during the quarter. So.

The sales capacity and the quota coverage that we have now is.

Frankly, better than we've had in years and we're starting to see some of those some of those new reps contribute and I would expect more of them to contribute does as the months roll on so.

So I'd expect to see see some improvement in coming quarters on though on the fixed side.

Yeah, and with regards to your question as far as expectations for for Q3.

Yeah, We did mentioned that July results.

Came in quite strong not to the level that they were in Q2, but quite strong in order in order for us to achieve.

What we're saying is our for $34 million, we would be somewhere in the midpoint between a where july and historical pre covert levels.

Okay. That's helpful and maybe David as a follow up we're obviously seeing large platforms accelerate their E commerce initiatives, obviously, Google shopping Facebook Instagram shops countries et cetera, recent announcements there how does that impact your business from a business development standpoint, as well as front backend technologists.

Endpoints, you know to make sure that you have the right tools for integration. Thank you.

Yes, Thanks, Colin I think it's I think it's really good for us right. So.

We were the initial launch partner for example for Walmart when they want their marketplace with Google shopping we'd been partners with Facebook and Instagram on on checkout and marketplace initiative. So with the larger platform C and Channeladvisor is a really high quality network of suppliers, who are essentially ready and able.

Two attached to their platforms and bring a good consumer experience, which is really important to them for obvious reasons. So.

So we're typically one of the first if not the first call that these platforms make when they're ready to launch something target plus being another example that.

Launched with us.

And so so I see that as as a as meaningful opportunity for for us and from a from a technical perspective. I mean this is what were built to do writers to its to I think that syndicated eight new marketplaces and in Q2. So.

Our system is built to expand into attaching to multiple systems and and that's what we do so I don't see any reason why.

I wouldn't just continued to be the case the normal normal course for us.

Thank you.

Thanks, Paul.

And next question from wind of Matt Pfau from William Blair You may begin.

Hey, guys. Thanks for taking my questions, maybe just to dig into the the strong bookings result that you saw in the quarter. You know how is that trend in terms of you know split between brands and retailers is that the you know going into.

Anticipate a direction much more towards the brands.

Hey, Matt the David Yes, absolutely.

We saw a really nice quarter with brands.

The proportion in the mix of brands and retailers is significantly higher for brands, but it is in our overall revenue mix. So.

To me that indicates that we would expect to make continued progression as that mix shift goes towards towards brands. One of the nice things with brands. We've talked about this before as you know.

Not only do they have a lot of opportunity to expand beyond our initial engagement which is.

Something we saw a lot of a lot of in the in the second quarter expansion bookings as I mentioned that the call.

But increasingly this current situation the pandemic is accelerating a lot of brands ecommerce initiatives right. So if your brand that.

As you know historically, 90% of your revenue from the retail channel well all those retail store closures really caused you to think about how you had to get better control over over the digital channel. So so both on the new customer side and on and on expansions. We've seen we've seen strong performance with brands.

Got it and then you mentioned that some of your competitors have been forced to reduce staff, which you know perhaps that implies that you've been gainshare relative to them. So I guess number. One is you guys feel that you've been gaining share and then and you also mentioned in the context that that you've been make.

And investments where are the a sort of key areas, where you've been adding resources.

Yes. So you know some of some of those competitors are private and so we don't necessarily have visibility into into their performance but.

I mean I've seen at least a couple of cases, where there have been substantial reductions in go to market in sales et cetera, and the impact of that I'm on their operations may not be felt per quarter, or two but but but fundamentally I think that.

Especially in E commerce space will prove to be will prove to be a mistake. So.

As I said in our call Weve leaned into it.

We've been growing our R&D.

Head count for for several years now on a substantial portion of Blue boards team was actually software engineers. So so that out of though a nice nice number of people to up to our engineering organization.

But as I said in the call. We've also been investing in sales and services when the anticipation of.

Continued continued strong demand for our products.

Great. Thanks for taking my question, guys and great job in the quarter.

Thanks, Matt.

Your next question comes line of Thomas Thomas Forte from D.A. Davidson.

Again.

Great. So first off David that's rich and ready for it.

Exceptional quarter and stay well so one question and one follow up for David So honest earnings call ebay. Their management suggested ecommerce trends were highly correlated with mobility. So in countries that seem to be doing well imagine Kobe team, such as Germany, and Italy, Theres improved consumer will build.

I'd in a moderation in ecommerce trends.

We have comparison in geographies, where it's still a big challenge. This is the U.S. ecommerce trends have held Additionally, ebays management said ecommerce trends are more correlated to mobility. The government stimulus. So David I'd. Appreciate your thoughts in the near term sustainability of elevated ecommerce sales in the influence of.

Mobility verse stimulus.

Hey, Tom Thanks for the remarks I, it's a really good question.

And you know I think for us at least it's maybe a little bit too early to say I mean, it stands to reason that as a as various countries or states or geography is open back up.

There's there's some level of return to normalcy as consumers can go to stores that were shot you know during the pandemic and maybe reopening now so I think there's some some logic to that.

However, I would say that.

Even in states I've been I've been looking not so much of the data on the European basis person, yes, I'm actually been looking at U.S. data state by state because there's there's a.

You know quite quite a spectrum as you know as to how different states are handling things and I actually haven't seen a particularly meaningful correlation between states that have reopened versus you know more quickly versus those that that happen.

And so I think part of what we're seeing is that even given the stores or reopened theres a lot of hesitancy for consumers to rush back into a retail environment I'm just for just for health and safety reasons and.

And on top of that the the retail experiences and frankly quite as pleasant as it used to the right. I mean now you've got to go into store you worry a mask you're potentially limited to the number of people in the stores. So.

So so I would expect that some of those pressures on on offline continue and I think a lot of people have experienced online maybe for the first time or maybe they've been buying a central's now for the first time or groceries online for the first time and I think a lot of people are are realizing that that's pretty convenient and it's a it's a habit.

It's going to stick to some level, so and as it relates the stimulus I mean, we saw we saw really really strong volumes around mid April which we refer to stimulus day. When the initial batch of 1200 dollar checks that people to counts.

So there was clearly at least a short term effect from from that what you know obviously no no new stimulus program has been passed in the U.S.. So we'll be watching with interest to see what what and what if something passes and what the nature of it is and what effect. It has on on consumer spending. So that's part of the reason that's.

A little bit hard to forecast right now what effect that will have on consumers.

Good and then for my follow up question I want to know the implications to Channeladvisor specific and industry in general on Amazon Prime day being held in the fourth quarter. This year instead of a normal year, where it's in June or July.

Yes, that's a really interesting question.

My initial reaction to to the post tone of Prime day to October was frankly, why why would you want to move such a such a heavy volume day, so close to Q4.

I think what I've and this is speculation on my part I think what I've concluded is that you know amazon's fulfillment capacity and they've done an amazing job rebuilding on the fulfillment side from from some of the challenges they face and not in March and April, but I suspect Amazon you know sees Q4 as a as.

As potentially a.

Really really strong volume quarter, and and maybe what Amazon is trying to do is to pull forward. Some of that demand from the November and December into October to try to smoothed out of the volumes a little bit and keeps on that pressure.

From building too much on on their fulfillment operations. That's again, that's pure speculation on my part.

If that's true than to me, that's a bullish signal right it indicates that the.

Amazon may be expecting a really really strong.

Q4.

Well, obviously have to have to see.

Great. Thanks for taking my questions appreciate it.

Thanks, Tom.

And our next question on this line a line Mcdonald from Needham.

Let me go ahead.

Hey, good morning, everyone. Congrats on an excellent quarter I guess, David first one for you obviously brands as it's been a big focus.

Hey, Ryan, Yes, I think thats that that's true both of brands and retailers. So for different reasons brands obviously are.

Following the consumer in the shifting patterns of how to access the consumers. That's that's really what's driving brands in the urgency is driven by the stress that they're seeing on the retail partners.

Even on the retail side.

It's the same dynamic right I mean consumers are are changing how they how they buy products ecommerce is obviously grown substantially as a percentage of overall spending.

Consumer spending so.

So retailers also have to have to follow that and I would say in general.

Probably not surprisingly retailers.

There are several years ahead of brands in terms of maturing there their digital offerings I mean, it's not uncommon.

To come across the brand to hasn't really even started that journey or is very very early in that and that journey right. So I would say as a as a segment brands or are some number of years behind retailers.

Yeah retailers.

The one area of their businesses, it's actually been doing well as is the digital channels. So.

If you're struggling if your retail and you're struggling with your with your physical footprint or and store closures and things like that.

Even some of the more stressed retailers, we've seen double down on their emphasis on on digital because that's where the action is so.

So I'd say, it's an urgency across both.

The reason, we think brand they are important though is if we sort of play that out to its logical conclusion.

We think some retailers will make the turn and really develop a durable long term value proposition as a middle man for the for the consumer.

We also think and we've seen this right already this year number bankruptcies and store closures. So.

So we think that.

For every every retailer that successfully makes that turn theres, probably a couple that that don't and so if you're a brand.

You know ultimately whats left standing is the brand selling through a few a few digital channels.

Excellent and then I guess as we look at any parse through some of the July data and the strength that you've seen there is there anything within their that suggests that you're seeing interestingly in regards to back to back to school spending trends. He sees more of those dollars shifting online this fall versus maybe what traditionally.

It was a bit more of an in store experience.

That's an interesting question and I don't know that we have enough data yet in July one of the interesting dynamics. We saw in July was was actually a little bit a slower start to the month in terms of volumes and some of that's.

You know just the nature of the July 4th holiday, but then as July progressed, we saw volumes steadily increase.

And I haven't seen I don't know if we've done this yet I haven't seen data that correlates anything related to back to school I I'm very curious to see if we see we published I think seven or eight weeks of.

Category trend data in March and April around things like people are buying.

Desks to work from home or laptops and headsets.

I Wonder if we'll see a similar surge in sort of school from home.

Purchases as people realize that the likelihood of their kids really being back at school are being back at school full time is diminishing I think with each passing day.

But haven't haven't done the analysis yet.

Got it thanks for taking my questions and congrats again.

Thank you.

Once again that star one for questions.

Our next question comes the line items that I mean from B. Riley FBR may begin.

Yes. Good morning, everyone. Thanks for taking my question congrats on a strong quarter.

David I guess, just just turning back to the bookings portion maybe can you give us then.

The mix coming from existing customers and expansion versus what you're seeing with with new customers being added.

Yes, Hey, Zach prepared comments.

Yes, I would say pretty balanced.

And.

Probably a little bit heavier on the expansion side than a typical quarter.

I think.

Not so much that I would call it pronounced or anything like that but just the incremental uptick in the proportion thats expansion versus versus.

Versus new customer and I think I think some of that is when we saw this kind of urgency in this pull forward of digital strategies.

Existing brand customers those are sort of the easiest to to convert to.

Bookings quickly right because they already worked with US we've gone through procurement, we've gone through security audits.

So it's literally a matter of adding NSW or something if there if they are adding a capabilities so that may be.

Sort of a temporary phenomenon related to related to just the nature of the environment in Q2, but.

I was really pleased with the mix of brands versus retailers and again I also think that that longer term as as a larger and larger proportion of our customer bases brands.

It is possible the.

The that there's a certain amount of more elevated expansion bookings. So we see just because by nature brands have larger opportunities for us to expand with them just given the breadth of our product portfolio. So so it's possible overtime that expansion bookings are more substantial part of our bookings.

Understood and then some Blake there it really.

Despite some of the concerns there near the end March in early April around potential customer attrition. It sounds like your retention held up pretty well here in Q2, I mean can you give us a sense of how you're thinking about any sort of risks to customer churn as we move for the next couple of quarters.

Yes, I'll I'll say, a sentence or two and that's maybe you want to chime in I think I think it the you know at the beginning of Q2.

We didn't really know what to expect I think I think we can all agree that this has been sort of.

Hard to predict pandemic for example.

If somebody had told you that the housing market would be really strong during oh pandemic you might not have believed them.

So there have been aspect of this has been kind of hard to predict and we sort of went into Q2 assuming that.

The store closures and bankruptcies on the retail side would would start to show up in our in our numbers and we Didnt, we didn't see that and I think part of it as I alluded to earlier on one of the earlier questions that you know, even even if a retailer isn't distress at some level. The digital channel is the one that is performing for them and.

And so that's not an area, where they were they necessarily want to want to want to cut back.

So as we as we look forward I think that on the retail side.

The stress that retailers have been sort of seeing for some time now.

All of the trends that were there were there are still there and the pandemic is probably accelerated some of those trends so.

You know we've been pleased so far with what we've seen but but I do think retail remains under under stress and you know we make we may see some churn from that from that segment. That's part of what we are part of what we plan for so I don't know if.

You have anything Dan.

I think what I would add as you know we talked a little bit about how we leaned into work with our clients during the second quarter and you know we provided about a million dollars that release and most of that was for him.

Delaying payments working on payment term with customers as well as adjusting their tears and contract terms to yes, I knew level right what might that at the lower or higher being based on how they.

How their businesses responded to that endemic and I think by working with our customers, we really help and stay in the game and.

Secondly, whether that first the amount of the storm.

So it is actually resulted in a very few rich termination.

Directly related to the pandemic. So I think in general that what you really get it with our strategy.

Try to get them through and work with them because we knew E com, what's going to be the lifeblood, what's gonna and help their businesses remain or.

More durable so I think we work exactly what that going forward and sorta anyone's guess as to how long this is going to happen and what that and due to our recent retail customers in the future. So I think we saw less than we expected, which is great and that the strategy, we deployed work and as well.

Look forward I think we just have to see how long. This is now act.

Okay, great. Thanks for taking my questions and best of luck in the second half.

Thank you.

Thank you all showing up for the questions at this time I look back over to rate for any closing remarks.

Thank you everyone for joining us today, 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.

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