ChannelAdvisor Corporation (ECOM)

ECOM 
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ChannelAdvisor Corporation (ECOM)

Q1 2014 Results Earnings Conference Call

May 5, 204; 04:30 p.m. ET

Executives

Scot Wingo - Chairman & Chief Executive Officer

John Baule - Chief Financial Officer

David Spitz - President & Chief Operating Officer

Analysts

Brad Reback - Stifel

Michael Huang - Needham

Greg Dunham - Goldman Sachs

Colin Sebastian - Robert Baird & Co.

Karl Keirstead - Deutsche Bank

Justin Furby - William Blair

Shawn Milne - Janney Capital Market

Eric Lemus - Raymond James

Chad Bartley - Pacific Crest

Presentation

Operator

Good day ladies and gentlemen and welcome to the first quarter 2014, ChannelAdvisor earnings conference call. My name is Derek and I’ll be your operator for today.

At this time all participants are in listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions)

I would now like to turn the conference over to Mr. John Baule, Chief Financial Officer. Please proceed.

John Baule

Good afternoon and welcome to ChannelAdvisor's conference call for the first quarter of 2014. This is John Baule, Chief Financial Officer of ChannelAdvisor. With me on the call today are Scot Wingo, CEO and Chairman; and David Spitz, President and COO.

After the market closed today, we issued a press release with details on our first quarter performance, as well as our outlook for the second quarter and full year 2014. This press release can be accessed on the Investor Relations section of our website at ir.channeladvisor.com. In addition, this call is being recorded and a replay will be available following the conclusion of the call.

During today's call we will make statements related to our business that maybe considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date.

We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause the 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 www.sec.gov.

During the course of today's call, we will refer to certain non-GAAP financial measures including core revenue, which excludes revenue from two legacy acquisitions that are not a core focus of our business. A reconciliation of all non-GAAP measures to the most comparable GAAP measure is included in our press release.

Finally, at times in our prepared comments or responses to your 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.

And with that, let me turn the call over to Scot Wingo for his prepared remarks.

Scot Wingo

Thanks John and welcome everyone to our first quarter 2014 conference call. Results for the first quarter exceeded our expectations. Revenue came in at $19.3 million compared to last year’s revenue of $14.9 million, representing a 30% year-on-year increase.

Core revenue came in at $19 million, a 32% increase over last years $14.4 million. comScore reported that U.S e-commerce grew at 15% year-over-year for the first quarter of 2014, so we are pleased to be growing more than twice that rate.

It was great to see many of our shareholders and analysts at Catalyst U.S. and Europe this year. Both Catalyst events had record attendance and are the only venues where retails can see the top players in e-commerce such as Amazon, eBay, Google, MercadoLibre and Alibaba.

At this year's Catalyst, in my keynote I introduced a new e-commerce trend we are seeing that I wanted to share here on today’s call. For about a year we’ve been doing a lot of research and work in the e-commerce market in China. There are a lot of data points in China that are mind-blowing, but the one that really stood out for us is that the top e-commerce channel category in China is market places with a 90% share compared to the other types of e-commerce channel such as such engines and comparison shopping engines.

To put that in perspective, here in the U.S. market places had a 25% share for e-commerce channel. Europe is similar to the U.S. and Latin America is in the 33% to 50% range. So China’s market places have 90% share and the U.S. market places are 25%.

We look at the data point and ask ourselves, is the U.S. leading or lagging this trend? We think the U.S. is lagging and that leads us to believe that we are in the early stages of a surge in market place share in the U.S. In homage to Marc Andreessen’s, Software Is Eating The World essay, I’d like to call this new trend, Marketplaces are Eating the e-Commerce World.

This is just a fundamental question, why are marketplaces so popular with consumer globally? First, the way we define a marketplace is in e-commerce venue with multiple sellers and where the consumer buys from the venue and not directly from the seller’s web store. Examples in marketplaces are eBay, Amazon’s third party business, Tmall and MercadoLibre.

Marketplaces have four features that differentiate their bio-experience from other e-commerce channels; selection, values, convenience and confidence. In China e-commerce broadband and mobile, all hit it about the same time, along with innovated approaches from Alibaba, Jingdong and Tencent; the favorite market places that caused them to be the dominant channel in that region.

If you look at the U.S. we see signs that marketplaces are already taking share, such as Amazon’s 27% year-over-year growth rate for the electronics and general merchandise, often called the EGM category that I announced in the first quarter. The tremendous growth of mobile usage in the U.S. and the success eBay and Amazon are having on mobile platforms is putting pressure on non-market place e-commerce channels like Google Search Engine.

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