Q4 2020 ChannelAdvisor Corp Earnings Call

Ladies and gentlemen, and welcome to the Q4 2000, and Sweeny Channel Advisor earnings Conference call.

At this time all participants are in a listen only mode. Neither and we will conduct a question and answer session and instructions will follow at that time if.

Anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone I would now like to turn the card and signs over to your host Mr. Raiford Garrabrant director of Investor Relations. Sir. Please go ahead.

Thank you Louise and good morning, everyone.

Welcome to the Channel Advisors conference call for the fourth quarter and full year 'twenty and 'twenty.

With me all the call today are David Spitz Channel Advisors, Chief Executive Officer.

And so Govia channel advisors, Chief operating officer.

And rich Cornetto channel advisors, Chief and Oswald Sir.

This morning, we issued a press release with details on our fourth quarter 2020 performance as well as our outlook for the first quarter of 2021.

This press release can be accessed on the Investor Relations section of our website at IR day channel advisor Dot com.

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

During today's call, we will make statements related to our business that may be considered forward looking under federal securities laws.

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

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

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

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

For a 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 SEC website at SEC Gov.

During the course of today's call, we will refer to certain non-GAAP financial measures.

<unk>, adjusted EBITDA, which excludes depreciation amortization.

Income tax expense interest and stock based compensation.

For 2020, adjusted EBITDA also excludes transaction costs for our acquisition of Blue Board and the third quarter.

Well for 2019 and that also excludes non recurring severance and related costs.

We also refer to the related measure adjusted EBITDA margin.

Which is calculated as adjusted EBITDA divided by our revenue.

Our press release that we 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 and our supplemental financial presentation posted on the Investor Relations section of our website.

Finally at times, and our prepared comments or responses to analyst questions.

And they offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results.

Be advised that we may or may not continue to provide this additional detail and the future with that let me turn the call over to David.

Thank you raiford and what a year, we delivered record fourth quarter and full year results as continued strong execution, our expanding business with brands and record ecommerce volume drove success for our customers and another quarter of double digit growth for us as a result revenue adjusted EBITDA, both significantly exceeded our guidance for the.

Quarter.

I'd like to touch on a few highlights all of which make us very bullish on our outlook.

First our focus on brands continued to pay off with fourth quarter revenue from brands up 27% year on year to 35% of our total revenue and 41% of our subscription revenue.

We believe that the superior unit economics, we enjoy with brands will continue to positively benefit our long term financial performance as they grow to represent a larger and larger proportion of our customer base.

Second our sales and services teams continue to drive very strong results capping off our best year of net bookings and years, which with much of that momentum and the back half of 2020 and most of it with brands is roughly two thirds of our gross bookings flow with brands.

Third our services team delivered the best year of revenue tension in 'twenty and 'twenty that we've experienced as a public company.

And we think there's more improvement to be had as we continue to invest and enhancing our services and growing our brand customer base.

Force the strong execution yielded another acceleration and subscription revenue growth to 8% year on year and based on recent performance. We anticipate subscription revenue growth will continue to accelerate to low double digits and the first quarter and for the full year 2021.

Fifth our long tail of marketplaces, comprising channels like the Lando target plus shopify and well over 100, others continued to grow G and V on our platform at triple digit rates and the fourth quarter and for the first time ever was larger than ebay and Walmart for us and second only to Amazon by volume.

Supporting this trend one of the major customer driven and investments. We're planning for this year is to significantly expand our breath of supported channels and we expect to add at least 80 additional marketplaces and other channels over the next 18 months.

Many of our brand customers tell us they'll add marketplaces as fast as we can add them and we accept that challenge.

Six and I'm sure and no small part due to our focus on innovation. We were recognized by digital Commerce 360, as the industry's top channel management platform for the ninth year in a row, highlighting our leadership position and the trust our customers place and us.

And lastly, the inherent leverage in our model was on full display in 'twenty and 'twenty with full year, adjusted EBITDA exceeding $36 million up 80% year on year and full year operating cash flow was over $34 million.

Our strong financial performance and execution in 2020 gave us the flexibility to make a number of strategic investments, including our acquisition of Blue Board, leading shelf analytics platform for brands and we've already seen early results from this acquisition as we landed new customers like Chanel, Gibson guitars, and Curt manufacturing and steel series and the quarter, while adding and what.

And its functionality for existing customers like Xerox and spectrum brands.

More broadly on the sales from the investment we made to increase sales capacity and the last year really paid off and the back half of 'twenty and 'twenty as newer sales reps came off ramp and started producing we won and expanded business with a number of brands and the fourth quarter, including Tcl Electronics, Maday, Canada Fisher, Michael appliances, chalcedony here and the facto.

And significantly expanded our strategic partnership with X P O logistics during the quarter.

Overall, we increased our brand customer count by 37% and 2020.

We agree with the emerging consensus that consumer behavior has lately been changed permanently by the pandemic and we believe that ecommerce volumes that we've seen in recent months represent the new normal.

Because of this we've also seen and increased urgency on the part of our customers and prospects to accelerate their digital plans and in addition to investing and product innovation. We also plan to make significant investments and our service model to help our customers make the right strategic decisions and drive success.

'twenty 'twenty, one is an investment year for us and we're excited by it.

This year's employee kickoff theme was think big and as we enter our third decade and business. That's exactly what we're doing as we lean into this moment aggressively to expand our lead and remain one of the most respected and trusted partners and E commerce and with that I'll turn it over to Beth.

Thank you David and good morning, everyone I'm thrilled to be able to share with you today that Q4 marked a strong finish to an excellent year as we achieved continued progress and our commitment to enable customer success.

Last quarter, we mentioned that churn measured in dollars had been reduced to the best levels and almost seven years, and we improved upon that and Q4 <unk>.

Expansions with existing customers skewed heavily towards our brand clients showed continued strong commitment to our platform and again increased significantly year over year. This is a testament to the numerous ways in which channel advisor is helping customers achieve their online commerce call expansions and reduce churn are important drivers of sustained growth.

And it's encouraging to see the trends moving and such a positive direction.

Improvement is rooted and actions we've taken to improve the customer experience.

We have focused on client specific account planning and goal achievement.

Levering up more intentional and improved first year experience for our new clients launching and all new knowledge center and improved and that guidance to help clients make critical decisions and adopt key features and providing thought leadership through a steady flow of webinars blog posts and white papers and to provide clarity amidst the chaos.

2020, with it clearly terrific year for improving client success and I'm proud of the progress we achieved with our customers. What's most exciting. However is that our initiatives are just getting started.

As we move into 'twenty and 'twenty, one we have new projects and our work to strengthen our capabilities further and.

In addition to staying the course with our plan to drive further improvement and first year renewal.

We are launching a new strategic initiative to transform our enterprise level of service.

Our success in attracting large brand customer and has created the opportunity to expand our business and increase our depth of engagement and cultivate stickier relationship.

We are making meaningful investments across the services organization, increasing account management coverage to enable deeper relationships and opportunity identification, increasing managed services capacity to enable our teams to go deeper with execution and.

Adding new role to customize solutions manage accelerated expansion plans and provide enhanced guidance for online cross channel strategy at all to raise our game in terms of how we enable our largest brand clients.

We've also strengthened our team with the recent hiring of Amey Rockford as VP of Global services, Amy is a seasoned executive with nearly two decades of experience and the tech industry and has spent a significant portion of her career, serving large enterprise customers and is passionate about making them successful.

Let me now share and innovation update regarding new platform and capabilities. We've recently released.

Enabling brands to accelerate their digital transformation and achieved their ecommerce objectives remains our clear priority. Our product development is focused on generating insights through enhanced analytics and optimizing success on and across channels, enabling expansion and improving that and client experience.

New enhancements to the channel Health Council and power sellers to monitor the health and performance of their fulfillment channels closely and addition to their marketplaces and feet.

This provides relevant cross channel and platform visibility and opportunities to optimize.

<unk> can now utilize channel advisors managed services for Amazon's demand side platform to amplify their brand presence and continuing to focus on expansion channels, either added new marketplaces, including Amazon and Sweden, spar, two and 30 and France paid for and the U S and back market and five countries as well as new.

Our expanded first party drop ship connections with Macy's Walgreens and fantastic furniture.

And in 'twenty and 'twenty, one and we intend to accelerate this edition of new channels with a particular focus on EMEA and Asia Pacific.

And as David mentioned earlier, the <unk> transacted on the long tail of marketplaces has grown at an impressive rate our brand clients are accelerating their digital transformation and looking to expand their reach with more channels and fast we intend to be right. There working alongside them to enable this expansion.

This investment includes additional resources across business development product management engineering and services to enable the speed of integration and on boarding as well as the ongoing support of clients. We are super energized to partner with our brand clients to help them expand their reach.

A recent case study available on our website demonstrated our growing appeal to brands involving our brand analytics offering which was added with the acquisition of Blue Board.

For Newell brands, our consumer and commercial products manufacturer that owns more than 150 brands, including Rubbermaid and Crock pot.

Nearly 100 online and offline channels play and equally important role and the success of its baby Jogger Division as a result, it's critically important to craft the right assortment and maintain proper pricing as well as build and maintain harmony across online and offline channels.

Any jogger notes that the channel advisor brand analytics platform has made a tremendous difference and its ability to do just that.

And the software is used to regularly supervise the state of baby Jogger and distribution online specifically to monitor daily weekly and monthly trends at the product and retailer levels to quote a sales manager who works exclusively with independent retailers and without channel advisor brand and analytics I would be blind it would be almost impossible to check these metrics manually.

It definitely opens my eyes and helps me to understand what's happening in the marketplace track.

Tracking partners over time, and they will have identified patterns. They can see who is driving sales activity, where it's coming from and then take action to help ensure retailers adopt more products and diversify their offerings by working closely with Televisor baby Jogger and was able to increase the number of retailer product urls by more than 50% opened 11, new in store retailers.

And reactivated five.

And powering brands is what channel advisor is all about.

To summarize 2020 wasn't awesome here in terms of execution, we made great strides by strengthening our offering and enhancing our service levels. These efforts have paid off by driving improvements and sales to new customers expansions with existing customers and overall retention. We believe this positive momentum combined with our exciting initial.

And for 'twenty and 'twenty, one position us for more good things to come 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.

Well, it's certainly exciting to use the terms record breaking and historic so many times to highlight the operational and financial success, we achieved and a year. We can all agree was unlike any other and our lifetime.

We've made significant progress as a company in terms of strategic investments and overall execution to support our increased brands customer base not all.

Only through the pandemic, but for the future, where we expect to see continued dependency on E commerce and our platform to support the shift in consumer shopping habits.

Following a strong third quarter, where we saw exceptional net bookings performance and a return to subscription revenue growth. The fourth quarter produced even more impressive results driven by Prime day in October and the holiday season surge.

As David mentioned earlier, both revenue and adjusted EBITDA meaningfully exceeded the guidance we provided in November culminating with record revenue exceptional full year adjusted EBITDA.

Results and historic operating and free cash flow.

Now, let's take a closer look at the numbers.

Total revenue reached a record $43 million in the fourth quarter up 16% year over year.

Driven by an acceleration of subscription revenue growth and strong E commerce volumes subscription.

And revenue reached another record at $28 $6 million for the fourth quarter.

Representing an increase of 6% sequentially and 8% year over year.

Variable revenue during the quarter totaled $11.7 million, representing an increase of 40% from the year ago period.

This was once again driven by broad based year on year growth and <unk> and E. Commerce spending showed continued strength on top of the holiday season and boost.

Looking at revenue on an annual basis total revenue was $145 $1 million returning to year over year double digit growth of 12%.

David provided some financial details earlier specific to our brands customers, what really stands out to me is the strong growth, we have seen and subscription revenue from brands, reaching 41% of our total subscription revenue for Q4 up 600 basis points from the prior year period.

I'd like to point out a few additional metrics as they pertain to brands.

During 2020, we increased our net brands customer count by 37% and average revenue for brands customer is now approximately $70000.

So as you can see brands have continued to become a more significant piece of our business and we believe that all of this progress along with the strategic investments planned for 2021 that spoke of earlier.

Provide line of sight to achieving our stated goal of greater than 50% of our revenue coming from brands by the end of 'twenty and 'twenty two.

Moving onto profitability performance.

Adjusted EBITDA increased 15% year over year to $10 8 million for the quarter.

Generating an adjusted EBITDA margin of 27% for Q4.

For the full year 2020, adjusted EBITDA was a record $36 $3 million and adjusted EBITDA margin improved over 900 basis points from the prior year.

It is important to remind everyone that some of our improved profitability is a result of expense savings from the pandemic of approximately $4 million and 2020.

For example from travel and conference savings.

That would not that we would not expect to continue under a normal operating environment.

As we have shown in 2020, even with meaningful investments and the sales organization. We have successfully managed our expense profile and achieved profitable growth.

And I'll expand upon and a few moments after a record breaking year across many financial metrics. We believe it is advantageous to continue our investment cycle into 'twenty and 'twenty one.

With the goal of further improving customer retention and service and supporting top line growth.

Now turning to the balance sheet.

Consistent with our strong P&L performance cash and cash equivalents finished at $71 $5 million, representing cash generation of $5 2 million during the quarter.

And we achieved this despite some large cash outlay outlays and the quarter associated with our connect conference as well as larger vendor contracts that are annual payment terms for.

For the full year 2020 cash was up $19 $8 million over 2019 and remember this includes the Bluebird acquisition.

We also saw deferred revenue increase for the second quarter and a row.

Up $1.5 million for Q4, and driven by the strong net bookings performance, we achieved in the back half of 2020.

And as David mentioned earlier, we are confident that now is the time to lean in and pursue topline growth opportunities by investing and our product our services organization as well as some incremental investment and sales.

We expect to invest at least $6 million in 'twenty and 'twenty one on the initiatives Beth mentioned earlier.

Also the full year impact of the sales investments, we made and the first half of 2020, plus the incremental investments we plan on making a 'twenty and 'twenty one word at least another $5 million of expense during 2021.

Now for our financial outlook.

Well overall GMP levels remained elevated it remains difficult to forecast <unk> and variable revenue with any real precision for the full year.

Therefore, we are not providing a financial outlook beyond Q1.

So for the first quarter of 2021, we are issuing a revenue outlook range of between $37 3 million and $37 7 million representing.

Representing a year over year growth of 17% at the midpoint and and adjusted EBITDA range of between $6 9 million and $7 $3 million.

It is important to note that our Q1 outlook reflects low double digit subscription revenue growth over the prior year as well as the incremental investments and Opex I spoke of earlier of approximately $4 million for the quarter.

In addition, as David mentioned, we expect low double digit subscription revenue growth to continue throughout the year.

Finally at the beginning of last year, we you should a long term goal of a combined year over year revenue growth rate and adjusted EBITDA margin of 25% to 30% by 2022.

Given the success, we achieved in 'twenty and 'twenty as well as the strategic and introduce we have planned in 'twenty and 'twenty, one and our improved revenue growth outlook. We are raising this range to 28% to 32% by the end of 'twenty and 'twenty two.

In closing 'twenty and 'twenty was a historic year for chattel adviser, which we believe will help transition us to the next phase and our company's history.

With a focus on sustained revenue growth to improve shareholder value, while still maintaining healthy margins and strong cash flow.

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

Thanks, Rich as we enter our third decade, we're proud of what we've built but we're also just beginning ecommerce is a massive market and coming off a record year. We believe we're better positioned than ever to drive continued growth and industry leadership and with that operator, we'll go ahead and open the call to questions.

And ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone one momentum for our first question.

And our first question comes from the line of Thomas Forte from D. A Davidson your line is open.

Great. So congrats on the quarter and the.

The question I had David is that there's a lot of capital raising going on specifically aimed at selling on Amazon.

So if you look last year, we saw that there was 660 million raised by companies that are buying essentially fulfillment by Amazon sellers and then this year a threshold loan raised 1.25 billion towards the same and.

So I wanted to know what you thought that meant industry wide and then what the specific implications were for channel advisor because I think that's essentially a different way of leveraging Amazon and leveraging Amazon is one of your greatest core competencies and my opinion. Thanks.

Thanks, Tom.

And I think the investments and the space just overall validate the opportunity that's out there.

And we're tracking about 40 of these so so there's there's quite a lot as you point out and there's quite a lot of investment going on and several billion dollars worth.

You could argue is maybe a little bit of a crowded trade and and maybe eventually there'll be some consolidation.

I think theres a couple of interesting things to watch for it'll be interesting to see how these companies navigate the Amazon concentration risks.

Over time, I expect a number of and will want to go multichannel, which are and creates an opportunity for us and how ultimately how these companies generate consistent what I call Alpha over Amazon and so does it become a product or brand picking skill and how much proprietary data and do these to these companies have what's their what's their sustainable.

Our competitive position.

So I do think there are some potential longer term questions to be answered, but overall I think it just takes it helps accelerate the transition to digital for everyone in the space and I think it'll help draw.

Our target market, which are larger brands global brands to realize that they need to continue to invest aggressively in this space. So and I also expect that several of these consolidators will end up being customers of ours, particularly as they seek to go multichannel. So I see it as a bullish signal.

Excellent and then from my follow up question I wanted to talk about something that's complementary so the last three quarters, if not longer you've been giving what is my favorite statistic, which I think you referred to today is the long tail of marketplaces, and how that's essentially your second biggest marketplace and growing and our fastest rate. So do you see that as just.

Other companies starting to warmly embraced the marketplace model a general acceptance by consumers are shopping and that manner. So why do you think this trend is so significant and then is the margin profile for channel advisor any different for the long tail of brands for sorry long tail of cell.

Others versus Amazon.

Yes, it's a great question and it's probably to me one of the most interesting developments last year, particularly towards the end of the year. When as you pointed out it became our second largest aggregate marketplace or set of channels I think it represents a few things I think.

And it shows that we've had some good success and helping our customers expand to new channels individually. These arent necessarily huge right. They don't they're not obviously as big as Amazon or Walmart or others, but collectively they are quite large and the easier we make it for someone to add a third and fourth fifth or eighth or 10th or 15th channel.

The easier it is for our customers to just add incremental exposure to consumers who shop. There right. So what you find is that that long tail tends to be that way, where you see the most successes on the long tail you see regional specific marketplaces like for example, allegro and Poland or Zelle Lando in Germany.

And and Atlanta is a good example of somebody who dominates and particular categories. So primarily fashion. So I think what it goes to show you is there's a really really vibrant opportunity out there for people to build alternatives to Amazon of whether it be category specific or maybe maybe region or country specific and the more.

The more our brands get in and see the success that they have with marketplaces as I'd mentioned earlier in my remarks, the more they want to add additional ones. I mean, there are hundreds and hundreds if not thousands of marketplaces around the world and.

And there they are different in the Philippines versus South Korea versus India versus South America.

And so you have this really really vibrant ecosystem out there and you add them up and they're pretty significant. So I think it's just as general recognition from customers that this is a great way to just continue to broaden their exposure to more and more consumers worldwide.

And that's why we plan to add 80 additional ones. This year, which is a substantial increase from from where we are today, we have a lot of customers, telling us and they want to put everything on channel advisor.

But we need to add you know these five marketplaces and APAC for example for them to be able to do that.

As far as your margin profile question.

And I don't know that I would say that there's a a dramatically different margin profile. Many of these marketplaces connect us through our access program and so they build the connections to us.

And in some cases, we do have economic arrangements with the market places depending on what they're trying to achieve.

But I you know I.

I don't I don't see it as a.

And our negative margin impact for us at all in fact, I like the idea that it continues to diversify our GMB base and ultimately it gives our customers more and more ways to reach consumers.

Excellent. Thanks for taking my question.

Thanks, Tom.

And our next question comes from the line of Colin Sebastian from Baird. Your line is open.

Thanks, and good morning, everyone, maybe a couple of questions from me.

David I wanted to follow up on your comments regarding the long tail is kind of a follow up question.

But we're clearly seeing a proliferation of transactional ecommerce capabilities within social platforms and I know you have some integration is already but is that a potential additional leg of opportunity for channel management as brands and merchants and start to sell more aggressively through apps like Instagram or pinterest or tick tock et cetera, and then.

And then maybe on the acceleration and growth in Q1 and over the course of the year I realize subscription.

Subscription offering is performing very well right now.

But I also wonder how much of a role the added stimulus checks and the U S or beyond the going and Lockdowns in certain regions may be contributing on the volume side of the business near term. Thank you very much.

Thanks, Colin and so on the long tail question, Yeah, I, absolutely believe that.

Social represents a really really interesting opportunity.

Especially in certain categories like beauty being being an example, where we see some some good traction.

If I've learned one thing over the many years of being and ecommerce is that you can never fully predict what and what the next trend or the or where the where the next big thing is going to come from and so that's part of our value to customers as we we worry about that and we keep up with things and we stay nimble and we were always working with these partners are in anticipation of what what's.

Coming down their road maps, so that our customers don't have to worry about being caught.

Flat footed so so I do think there's a there's an opportunity there I think a lot of that.

Historically has been a little bit more focused on smaller merchants.

Just because of.

It's a little bit easier for them to get going on and something like Facebook marketplaces, and example, but for sure, especially like I said for certain categories. I think it's a I think it represents a significant opportunity.

To your question about.

How much of a benefit are we seeing from stimulus obviously, it's a little bit speculative on our part.

I can't imagine that it that it hurts to have more cash going into consumers' pocketbooks, we certainly saw that last April.

When.

And the first round and stimulus checks went out I mean, we just saw G. N V levels kind of pegged to holiday levels almost to the day that debt most of those checks, where we're landing and People's accounts, So I think that.

It probably does contribute to some of the <unk> I think the reason, we're pointing to subscription revenue as we know that for the next few quarters as we lap.

Last Q2 that.

We obviously don't expect to see the same step function increase and G. M V next quarter that we saw last quarter.

And so there's probably going to be a little bit of noise in and GMP levels, and and variable revenue and it's a little bit hard to call and that's why we're not guiding to the full year, but we are pointing to that subscription revenue growth because at the end of the day that really points to more durable sustainable.

Longer term growth and it indicates the demand for our platform and the form of increased sales and improved retention and so so that that is a more durable phenomenon and especially over the next few quarters as we as we go through some of the noise of the Comparables I think that'll be.

And important metric for us too.

To continue to share.

Alright makes sense thanks, David Thanks.

Thanks Colin.

And our next question comes from the line of Ryan Macdonald of Needham Your line is open.

Yeah. Good morning, everyone. Thanks for taking my questions and again, congrats on an excellent year.

David is the first one for you and I was really impressed by the comments about the expectation for low double digit.

Subscription revenue growth.

Throughout fiscal 'twenty. One can you just talk about the visibility you have and to into that number and and when you think about the mix of what what would be driving out of the parts that are driving that.

What are you seeing in terms of sort of new customer pipeline versus expansion into new marketplaces or cross sell of Bluebird would love to hear some more commentary on that thanks.

Thanks Ryan.

I think I think we have decent visibility and and it really pegged to some of the recent performance, we've seen in sales and and our and and our revenue retention.

You know, obviously, we need to continue to execute at comparable levels to you know to deliver on that on that expectation, but I feel really good about our pipeline. When we look at for example, our bookings with with with brands and about half of those are expansion bookings roughly speaking and so the fact that we've increased our brand customer.

37% last year is pretty bullish to me and so that that customer count growth on brands actually grew faster than revenue and so the.

And we're driving more new logos into the business that will generate opportunities for us foods and further expand with them leaves me recently.

And I'm pretty bullish so.

And so you know as far as expanded GMB and marketplaces and things like that.

I don't think we really factored that into our revenue opportunity because we're obviously going to be building out a number of those connections over the course of the next year to 18 months.

I expect probably will be some some revenue benefits from that and just given some of the.

Eager and and so some of our customers to attach attached to those marketplaces, but.

But that's a little bit harder for us to predict so we're not really factoring that in at this point. So for me. It's just looking at the basic blocking and tackling of our sales team our expanded and expand.

Net sales capacity.

And the quota coverage, we have coming into this year being being strong and above where our targets are.

It feels like we've been executing really well obviously, we have to continue to execute but I think the results. We've had and the last couple of quarters give us gives us that confidence.

Got it and I guess, a follow up on the on the G. M V trends. Obviously, you know, we're still early and not quite seeing and what the impact of stimulus will be but I'm curious to know as you look through the month of January where you have you been starting to get a sense of what perhaps a new normal or a more normalized environment looks like.

Sort of post Covid and posted a very strong year of growth.

Yeah January GMB growth was was pretty strong.

It was a significant step up from December.

It wasn't quite at November levels that we saw but it was pretty pretty close and in fact, we saw a bit of an acceleration towards the end of January.

So you know that.

That seems pretty bullish to me and to go back to kind of Collins point about stimulus right. It's it's always hard to know.

How much of that is.

And is influencing things, but so far through the.

Through January of this quarter it looks like GMP levels have remained pretty pretty strong and of course.

The stimulus being discussed now that that May pass and some form and the next few weeks.

Probably comes with a fairly significant additional amount of money that flows directly to consumers so well.

When when that happens and how much it is and whether that finds its way to E commerce or or.

Or robinhood or other places and started to predict that.

But it seems more likely than not that there'll be some additional stimulus flowing and then Apis and future.

Excellent thanks very much.

Absolutely Thanks, Ron.

And our next question comes from the line of Matt Pfau of William Blair. Your line is open.

Okay.

And congrats on the strong results.

And Matt your audio.

I can't quite hear you.

Hey can you hear me net.

Great.

Oh, sorry about that guys can you hear me.

Yep.

Okay.

So I wanted to ask on the marketplaces, you're adding for 'twenty 'twenty one.

And obviously, a big number there when you think about adding those maybe just give us an idea of what's involved there how difficult. It is and I guess I'm trying to get at is the competitive differentiation, there and how it how difficult it is for.

Platforms, you may be competing against it to add marketplaces at the rate you are.

Yeah. Thanks, Matt I think I think it's one of our.

Strongest differentiators today, just the breadth of marketplaces, and we support around the world and so I think when when and when I talk about expanding our lead a this is an example of what I'm talking about so.

And.

A number of marketplaces connect to us directly in which case the effort on our part as you know not not huge.

But what those marketplaces want is access to a really high quality seller base to provide a great consumer experience and so.

For a lot of the ones that we support today they are connected to us through our through our API through our access program and we manage them through our partner our partner ecosystem.

In the case of the 80 that we plan to add I suspect there'll be some of that I also suspect there'll be some big integrations that we build for example, we are seeing heavy demand for marketplace expansions in Asia Pacific and because we don't have as many customers and APAC.

A number of those marketplaces wouldn't necessarily come to us to say hey, how do we connect to you because we don't we don't have those local suppliers. So when we do have as these global brands that want to go in and sell and these marketplaces and so I I expected for some of these will actually build the Dolby infrastructure ourselves I mean, we.

<unk> been doing this for a long time, and so I think we're pretty good at it but.

It does represent.

A few million dollars of investment on our part really to try to accelerate how do we get as many of these onboard as quickly as possible.

Because again when we look at when we look at the opportunity both in terms of G. N V and just the customer demand we have.

And we think that's an investment that will pay off multiple times over in the years to come. So so I think I think we already have a pretty good differentiated position when it comes to the breadth of market place and we support and the fact that we're going from you know.

Well over 100, and adding 80 more I think I think just extends our lead in that from.

Got it and then for the investments for 2021.

In terms of head count it seems like the primary focus is around.

Your service and support and customer success organization, what about in terms of sales head count, where where you add in terms of sales coverage heading into 2021 and any details around hiring and in that area.

Yeah, I think our I think we're pleased with where we are at the beginning of the year in terms of sales, what we call quota capacity or sales coverage.

We do expect to invest incrementally because obviously, the we already have our eyes towards 2022 and.

A lot of what we do this year will will set the stage for 'twenty and 'twenty two so I do expect some incremental investment on the sales capacity side just to continue to drive the momentum that we're seeing.

Not not to the same extent that we did a year ago. When we were really trying to close the gap on sales capacity.

And then beyond there beyond that obviously our investments in R&D like like I've spoken about we think there's some significant opportunities on the innovation side to extend our lead.

And then on the services side and and best May have a comment on this but.

We what's interesting is when when we work with brands. We typically initially work with you know just a portion of that brand maybe they've got a portfolio of brands, maybe we're working with them and and one country, but they operate in 20 countries.

And or maybe we're working with them and our shop immediate shovel media product.

But they don't use us for analytics, where marketplaces or whatever whatever mix they are using.

And we just think debt and we've seen this already that the opportunity to get in more closely and more strategically with the brand and help them navigate their digital transformation are we think we're probably maybe low double digits penetrated just and our existing customer base. So so we think the investment here is really focused on how do we how do we.

Make sure that we are really becoming strategic to our customers how do we become familiar with their organization from top to bottom.

And really give them what I would call. The service coverage. If last year was the focus on sales coverage. This year as the focus on service coverage to really make sure. They see success and we understand how to help them strategically because we do think the opportunity to expand with them is pretty is pretty substantial so I don't know if.

If that do you want to add anything to that but that's that's our focus on that front.

Yeah, and nothing to add we're just going deeper so we can learn more about their business and find all the ways that they can leverage our capabilities to continue to accelerate their transformation.

And ladies and gentlemen, once again, if you have a question at this time simply press Star then did and Berlin key on your Touchtone telephone.

Our next question comes from the line of Zach Cummins of B Riley Securities. Your line is open.

Yeah. Thanks. Good morning, Thank you for taking my questions and congrats on the strong end to the year.

Richard I just wanted to ask you around the GMB assumptions that youre, making for Q1 guidance I know theres still a few factors up and year such as potential stimulus, but we know low double digit subscription revenue, but kind of how are you anticipating GMB is going to be playing out for the rest of the quarter.

Yeah, Yeah, it's a great question and good morning.

So we mentioned.

And our prepared remarks that we are estimating low double digit.

Growth for the quarter with subscription revenue.

So if you were to assume say, 11% year over year growth that.

That would probably put variable revenue and a range of eight eight.

And $8 million something to other effect would.

Which would assume roughly the same growth rate. We saw in Q4 in Q3 of last year around roughly 40, 41, 42% growth and variable revenue. So that's that's how I modeled out.

Q1 for our financial outlook.

Got it and I understand and then I know a lot of the focus has been on the brand customers and the acceleration there, but David I wanted to ask you around your retail customer is kind of how do you expect that to really play out over the next couple of years, especially with you're accelerating your focus on these brand customers.

Yeah, Jack I think you know look that's an important part of our business I think the way I would characterize it as it's a more mature part of our business right. So I don't necessarily expect the retail piece of our business to be the driver of significant growth for us.

And it obviously provides us with a lot of non dilutive funding to invest and areas that we are that we've talked about today that we're that we're investing and.

And so it's a it's a good business it's mature.

But if I fast forward five years 10 years, and I think about what is the ecommerce landscape look like and and I think COVID-19 is only.

Amplify this is being being a middleman and selling other people's stuff.

And is harder and harder right and like and giving you. It's very very hard to differentiate and in particular, when you lose the benefit of having physical stores.

The stores have almost become a liability for a number of disease as opposed to and asset when everything else is one click away. So when I just look forward five or 10 years I think it's I think it's harder to be sort of a non differentiated middleman themselves. Other people's things, we think that the ones who are stronger and ultimately the ones who sell proprietary promise.

Its products, where they you know they own the brand they own the.

All of the attributes associated with the brand et cetera, and so that's why we're focusing there and we think that that longer term for us is the stronger growth engine.

Understood and and just the final question from me is the other revenue category saw some really strong growth. There in Q4, I'm wondering if you could give a little insight into and what drove that strong growth within the other revenue category and some of your opportunities on the partnership side is as we start to think about 2021 and 2022.

Yeah. So other as you probably know includes our partnership revenue right so and.

And as I mentioned earlier, we have.

Economic arrangements with a number of our marketplace partners because.

Because they want to work with us to for example, and make sure that we adopt certain elements of their roadmap for their technology platform or help them onboard.

More and more brands onto their onto their onto their marketplace. So.

So when when you see strong GMB performance not only is that an indicator that our customers are doing well, but because of those economic rent and arrangements. They also they also flow partly into our partnership revenue as well. So so I think that's a that's a pretty big piece of what Youre seeing there, but you know and.

More strategically.

We identified a couple of years ago that expanding our indirect sales efforts and our partnerships was was really important for us and it continues to be important for us and so that's that's an area of continued investment and continued focus for us going forward, we don't want to just completely rely on.

Our direct sales force, which is still relatively small compared to the size of the opportunity we want to drive more.

And more revenue and more and more opportunity generation through our network of partners.

And the expansion with XP other logistics is a good example, right. So like many logistics companies. They are looking for ways to add value added services for their customers and ultimately help their customers.

Chip Moore, right and so and so we are a perfect partner for someone like them.

Got it.

I think the last Tuesday.

And there are no further questions at this time.

I would now like to turn the call over to Mr. Raiford Garrabrant for closing remarks.

Thank you everyone for joining us today, we look forward to speaking with you again soon.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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