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ChannelAdvisor Posts Record Bookings and Pipeline

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By on Technology & Software

ChannelAdvisor reported solid first-quarter results, with total revenue beating the high end of management’s guidance by $0.3 million, and core revenue growth accelerating to 32%, up from last quarter’s 30% increase and representing the company’s fastest growth in the last seven years.

More importantly, the company had its best-ever new bookings quarter (dollar basis), and net customer additions of 136 increased 97% year-over-year and easily beat our forecast of 87 net additions. Management said the mix of enterprise and midmarket customers signed in the quarter was relatively consistent with prior periods, although the record bookings performance suggests that average selling prices increased sequentially.

On the heels of the strong bookings performance and the firstquarter revenue upside, the company slightly raised its full-year revenue guidance to 25%-26% growth (up from prior guidance of 24%-26% growth), with core revenue expected to increase a few percentage points faster. We believe the increased outlook includes room for the company to continue to beat and raise numbers, and we were also pleased with the company’s bullish pipeline commentary.

Consistent with our survey work at the recent user conference in March (see our note published March 13, 2014), we believe momentum in the business is as strong as it has ever been, and that the company continues to distant itself from the competition. ChannelAdvisor slightly beat expectations on adjusted EBITDA, and non-GAAP loss per share of $0.36 beat the consensus view by a penny. Although the record bookings performance had a minimal impact on near-term revenue (new business typically takes one or more quarters to ramp up), it had a larger impact on expenses, as ChannelAdvisor expenses sales commissions up front rather than recognizing them over the life of the contract.

The company’s margins should improve throughout the year, driven by revenue seasonality, the company’s annual user conference ($1.5 million of first-quarter expense), and management’s decision to frontload hiring in its implementation team. Still, management held its full-year adjusted EBITDA guidance unchanged, and now has a bias toward the higher end of the loss range as it looks to expand aggressively in international markets, notably China and Brazil.

Although the company plans to continue investing aggressively in sales and marketing through 2014 and beyond, it expects R&D expense to grow at roughly two-thirds of the rate of revenue growth beginning in 2015, and it expects G&A expense to grow at less than half the rate of revenue increases.

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