CommerceHub
Nov 8, 2017

CommerceHub Announces Third Quarter 2017 Financial Results

Revenue of $24.6 million increased 10% Year-Over-Year, $0.04 GAAP EPS, $0.08 adjusted EPS
Signed new drop-ship agreement with top 10 U.S. retailer in grocery and general merchandise vertical 
Signed a top 10 Canadian retailer as a drop-ship customer
Total customer count increased 16% year-over-year as retailers ramped drop-ship programs

ALBANY, N.Y., Nov. 08, 2017 (GLOBE NEWSWIRE) -- CommerceHub, Inc. (NASDAQ:CHUBA) (NASDAQ:CHUBK) ("CommerceHub," "we," "us," "our" or the "Company"), a leading distributed commerce network for retailers and brands, today announced financial results for the quarter ended September 30, 2017.

"We are pleased with CommerceHub's third quarter performance, highlighted by two new drop-ship customer agreements and continued growth in revenue and cash flow," said Frank Poore, CommerceHub's Founder, President and CEO.  "Many of the largest retailers and brands view CommerceHub as a strategic partner and are choosing us to help enable their most critical growth strategies. Our total customer count increased 16% in the quarter as retailers continued to on-ramp suppliers and embrace drop-shipping," he continued.  "Our sales pipeline is strong, and we remain intensely focused on signing new retailers and brands, increasing GMV share within our existing customers, and expanding margins through existing operating leverage as well as cost efficiencies."

"CommerceHub delivered a solid third quarter with an 80% gross margin that helped to generate $2.0 million of net income and $8.4 million of adjusted EBITDA for the quarter," said Mark Greenquist, CommerceHub's CFO.  "We also generated strong free cash flow and paid down the remainder of our debt, increasing our net cash balance to $8.4 million," he continued.

Third Quarter 2017 Financial Highlights

An explanation of the non-GAAP financial measures discussed above is included below under the heading "Statement Regarding Non-GAAP Financial Measures."  A reconciliation of these non-GAAP financial measures to the closest comparable GAAP financial measures has also been provided in the financial tables included at the end of this press release.

Other Recent Highlights

Restructuring
In September, we commenced a process to consolidate software development and other corporate activities into our Albany, NY headquarters to more effectively support the ongoing growth of our business by streamlining and centralizing operations.  We believe the restructuring will create more integrated solutions and improve cost efficiencies.  The plan included the immediate reduction of certain positions in our Seattle, WA office, the retention of certain Seattle-based engineers for a transition period, the gradual replacement of many of those positions in Albany, and the long-term presence of a Seattle-based account services team dedicated to brands and marketplace customers.

As of September 30, 2017, we estimate that the total expenses associated with this restructuring will be between $5.0 million and $6.0 million, which includes future expenses expected to be incurred from termination and retention benefits accrued over the retention period, which we expect to run through early 2019, but excludes actual and expected cost savings associated with the restructuring.  During the nine months ended September 30, 2017, we incurred approximately $1.1 million in restructuring charges.  Our total restructuring liability of $0.9 million consists of accruals for termination and retention benefits, which we expect to fully pay by the end of the first quarter of 2019.  Depending on the pace and magnitude of re-hiring in our Albany office, as of September 30, 2017 we estimate this restructuring will result in a net reduction in personnel and facilities costs beginning in the fourth quarter of 2017, which will gradually increase throughout 2018 and 2019 to an estimated $2.0 million to $5.0 million per year.

Conference Call Details
The Company will offer a live conference call, and a live, listen-only webcast of the call via the CommerceHub Investor Relations website at 4:30 p.m., E.T., today, Wednesday, November 8, 2017.  See http://ir.commercehub.com/events.cfm, where supporting materials, including a presentation and supplemental financial data, have been posted.


Live Call:


U.S./Canada Toll-Free Participants Dial-in Number: (800) 219-6912
International Toll Participants Dial-in Number: (574) 990-1026
Conference ID/Passcode: 1023438
Webcast (live and replay):http://ir.commercehub.com/events.cfm


About CommerceHub:
CommerceHub is a distributed commerce network connecting supply, demand and delivery that helps retailers and brands increase sales by expanding product assortments, promoting products on the channels that perform, and enabling rapid, on-time customer delivery. With its robust platform and proven scalability, CommerceHub helped over 10,000 retailers, brands, and distributors achieve an estimated $13+ billion in Gross Merchandise Value in 2016.

Important Information Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about future business strategies, future financial performance, cost savings, market conditions and potential, future growth of ecommerce, customer growth, sales channel expansion, international expansion and other matters that are not historical facts. These statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, market acceptance and performance of our products and services, competitive issues, general market conditions, regulatory matters affecting our business and changes in law. These forward-looking statements speak only as of the date of this press release, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any such statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. There can be no assurance that any expectation or belief expressed in a forward-looking statement will occur, and you should not place undue reliance on any forward-looking statements. Please refer to our public filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, for additional information about us and the risks and uncertainties we face that may affect the forward-looking statements made in this press release.

Statement Regarding Non-GAAP Financial Measures
In addition to reporting financial measures calculated in accordance with U.S. generally accepted accounting principles ("GAAP"), we provide non-GAAP financial measures that management considers in reviewing our financial performance because we feel they are relevant measures of the overall efficiency of our business model. These non-GAAP financial measures are not a substitute for, or superior to, and should be considered only in addition to, financial measures calculated in accordance with GAAP. They are subject to inherent limitations and exclude significant expenses and income that are required by GAAP to be recorded in our financial statements. Certain of these adjustments are based on estimates and assumptions of management and do not purport to reflect actual historical results. In addition, you should be aware that our computation of these non-GAAP financial measures may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate these measures in the same fashion. We define "adjusted gross profit" as gross profit plus share-based compensation, acquisition-related intangible amortization and restructuring charges. We define "adjusted gross margin" as adjusted gross profit divided by revenue. We define "adjusted operating expenses" as total operating expenses less share-based compensation, acquisition-related intangible amortization and restructuring charges. We define "adjusted EBITDA" as net income or loss plus interest expense, income tax expense, depreciation of property and equipment, amortization of capitalized software costs and intangible assets, share-based compensation expense and restructuring charges, less interest income and income tax benefit.  We define "adjusted net income" as net income or loss plus share-based compensation expense, acquisition-related intangible amortization, restructuring charges and the tax effects of these adjustments. We define "adjusted earnings per diluted share" or "adjusted EPS" as earnings per diluted share plus the diluted per share effects of share-based compensation, acquisition-related intangible amortization, restructuring charges and the tax effects of these adjustments.  We define "free cash flow" as net cash provided by, or used in, operating activities less purchases of property and equipment and additions to capitalized software.  Certain of these non-GAAP financial measures exclude restructuring charges, the elimination of which does not result in a reduction of operating expenses necessary to conduct our business.  By excluding these charges, we believe these non-GAAP financial measures provide supplemental information that enables us and investors to better analyze our operating performance and the sustainability of our results and to compare our performance on a more consistent basis from period to period. A reconciliation of these non-GAAP financial measures to the closest comparable GAAP financial measures has been provided in the financial tables included at the end of this press release.

CommerceHub Investor Relations Contact
Sara Leggat
investor@commercehub.com

 
CommerceHub, Inc.
Consolidated Statement of Operations
(in thousands except per share data)
(unaudited)
         
         
  3 months ended:  9 months ended:
  09/30/17 09/30/16 09/30/17 09/30/16
 Revenue$  24,614   $  22,478   $  74,390   $  67,671  
 Cost of revenue   5,028      5,737      16,183      17,162  
 Gross profit   19,586      16,741      58,207      50,509  
 Gross margin 80%  74%  78%  75%
         
  Research and development   6,434      5,077      18,745      13,391  
 Sales and marketing   2,432      3,023      6,750      9,024  
 General and administrative   7,402      8,008      21,286      23,207  
 Operating expenses   16,268      16,108      46,781      45,622  
         
 Operating income   3,318      633       11,426      4,887  
         
 Interest expense, net   (148)    (361)    (604)    (132)
         
 Pre-tax income   3,170      272      10,822      4,755  
 Income tax expense (benefit)   1,182      (438)    4,130      1,611  
         
      Net income$  1,988   $  710   $  6,692   $  3,144  
         
 Earnings per share:        
 Basic$  0.05   $  0.02   $  0.16   $  0.07  
 Diluted$   0.04   $  0.02   $  0.15   $  0.07  
         
 Share count:       
 Basic   43,286      42,773      43,141      42,773  
 Diluted   45,420      43,559      45,081      43,559  


 
CommerceHub, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
     
     
  09/30/17 12/31/16
 Assets   
 Cash and cash equivalents$  8,438  $  6,471
 Accounts receivable, net of allowances   12,526     18,109
 Prepaid income taxes   3,054     4,311
 Prepaid expenses   1,833     1,549
 Total current assets   25,851     30,440
     
 Capitalized software, net   3,803     6,716
 Deferred services costs   4,898     4,989
 Property and equipment, net   6,701     7,629
 Goodwill   21,410     21,410
 Deferred income taxes   9,450     7,714
  Other long-term assets   1,466     1,122
      Total assets$  73,579  $  80,020
    
 Liabilities and Equity   
 Accounts payable and accrued expenses$  2,770  $  2,135
 Accrued payroll and related expenses   7,433     7,435
 Income taxes payable   8     7
 Deferred revenue   5,603     5,149
 Total current liabilities   15,814     14,726
 Deferred revenue, long-term   8,375     7,581
 Other long-term liabilities   2,201     1,135
 Long-term debt   -      26,000
 Total liabilities   26,390     49,442
    
 Equity:   
 Total equity   47,189     30,578
      Total liabilities and equity$  73,579  $  80,020



 
CommerceHub, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
         
         
  3 months ended: 9 months ended:
  9/30/17 9/30/16 9/30/17 9/30/16
 Cash flows from operating activities       
 Net income$  1,988   $  710   $  6,692   $  3,144  
 Adjustments to net income:       
 Depreciation and amortization   2,002      2,453      6,278      7,315  
 Amortization of debt issuance costs   55      55      166      55  
 Share-based compensation   2,009      2,193      6,986      8,753  
 Deferred income taxes   (811)    (2,199)    (1,736)    17,015  
 Bad debt expense   340      440      931      695  
 Accrued interest income   -       -       -       (273)
 Impairment and loss on disposal of long-term assets   193      -       210      160  
 Working capital changes:       
   Accounts receivable   (1,146)    (252)     4,650      5,667  
   Prepaid expenses and other assets   (299)    (536)    (787)    (956)
   Income taxes, net   (42)    1,548      1,258      810  
   Deferred costs   (61)    94      91      (201)
   Deferred revenue   425      297      1,249      266  
   Accounts payable and accrued expenses   806      248      1,399      479  
   Accrued payroll and related expenses   1,243      1,283      (4)    416  
   Share-based compensation liability payments   -       (754)    -       (86,684)
   Parent receivables and payables, net   -       7,234      -       (9,112)
     Net cash provided by (used in) operating activities   6,702      12,814      27,383      (52,451)
         
 Cash flows from investing activities       
 Purchases of property and equipment   (210)    (377)    (1,159)    (4,513)
 Additions to capitalized software   (154)    (459)    (1,138)    (3,963)
 Collections on note receivable - Parent   -       -       -       36,380  
       Net cash (used in) provided by investing activities   (364)    (836)    (2,297)    27,904  
         
 Cash flows from financing activities       
  Borrowings on credit agreement   -       50,000      -       50,000  
 Repayments on credit agreement   (6,000)    (9,000)    (26,000)    (9,000)
 Cash paid for debt issuance costs   -       (100)    -       (1,100)
 Purchase of treasury stock   -       -       -       (3,600)
 Cash received from exercise of stock options   860      175      2,417      248  
 Cash received from employee stock purchase plan   464      -       464      -   
 Borrowings on note payable - Parent   -       -       -       28,664  
 Payments on note payable - Parent   -       (28,664)    -       (28,664)
 Contributions from Parent   -       6,000      -       6,000  
 Dividends paid to Parent   -       (19,730)    -       (19,730)
       Net cash (used in) provided by financing activities   (4,676)    (1,319)    (23,119)    22,818  
       Currency effect on cash   (1)    -       -       -   
       Net increase (decrease) in cash and cash equivalents   1,661      10,659      1,967      (1,729)
         
 Beginning cash and cash equivalents   6,777      6,949      6,471      19,337  
 Ending cash and cash equivalents$  8,438   $  17,608   $  8,438   $  17,608  


 
CommerceHub, Inc.
Supplemental Information
(in thousands)
(unaudited)
              
             
  3 months ended: 9 months ended:
  9/30/17 9/30/16 % Inc (Dec) 9/30/17 9/30/16 % Inc (Dec)
 Revenue by type:           
 Usage revenue$  15,833  $  14,562   9% $  48,245  $  44,437   9%
 Subscription revenues   6,986     6,420   9%    20,826     18,766   11%
 Set-up and professional services   1,795     1,496   20%    5,319     4,468   19%
 Total revenue$  24,614  $  22,478   10% $  74,390  $  67,671   10%
             
             
  3 months ended:   9 months ended:  
   9/30/17 9/30/16   9/30/17  9/30/16  
 Share-based compensation:            
 Cost of revenue$  100  $  (49)   $  299  $  (207)  
 Research and development   286     584        1,387     1,697    
 Sales and marketing   113     103        548     704     
 General and administrative   1,510     1,555         4,752     6,559    
 Total$  2,009  $  2,193     $  6,986  $  8,753    


 
CommerceHub, Inc.
GAAP to Non-GAAP Reconciliations
(in thousands)
(unaudited)
         
         
 Reconciliation of GAAP gross profit to adjusted gross profit:
         
  3 months ended: 9 months ended:
  9/30/17 9/30/16 9/30/17  9/30/16
 Gross profit$  19,586   $  16,741   $  58,207   $  50,509  
 Share-based compensation   100      (49)    299      (207)
 Acquisition-related intangible amortization   -       187      -       562  
 Restructuring charges (1)   240      -       240      -   
 Adjusted gross profit$  19,926   $  16,879   $  58,746   $  50,864  
         
 Adjusted gross margin 81%  75%  79%  75%
         
         
 Reconciliation of GAAP operating expenses to adjusted operating expenses:
          
  3 months ended: 9 months ended:
   9/30/17 9/30/16 9/30/17 9/30/16
 Operating expenses$  16,268   $  16,108   $  46,781   $  45,622  
 Share-based compensation   (1,909)     (2,242)    (6,687)    (8,960 )
 Acquisition-related intangible amortization   -       (250)    -       (750)
 Restructuring charges (1)    (836)    -       (836)    -   
 Adjusted operating expenses$  13,523   $  13,616   $  39,258   $  35,912  
         
         
 Reconciliation of GAAP net income to adjusted EBITDA:
         
  3 months ended: 9 months ended:
  9/30/17 9/30/16 9/30/17 9/30/16
 Net income$  1,988   $  710   $  6,692   $  3,144  
 Interest expense (income), net   148      361      604      132  
 Income tax expense (benefit)   1,182       (438)    4,130      1,611  
 Depreciation and amortization   2,002      2,453      6,278      7,315  
 Share-based compensation   2,009      2,193      6,986      8,753  
 Restructuring charges (1)   1,076      -       1,076      -   
 Adjusted EBITDA$  8,405   $  5,279   $  25,766   $  20,955  
         
 (1) Restructuring charges include termination and retention benefits and the impairment of certain capitalized software projects in connection with our 2017 Seattle restructuring plan.


 
CommerceHub, Inc.
GAAP to Non-GAAP Reconciliations, continued
(in thousands except per share data)
(unaudited)
         
         
 Reconciliation of GAAP net income to adjusted net income:
         
  3 months ended: 9 months ended:
  9/30/17 9/30/16  9/30/17 9/30/16
 Net income$  1,988   $  710   $  6,692   $  3,144  
 Share-based compensation   2,009      2,193      6,986      8,753  
 Acquisition-related intangible amortization   -       437      -        1,312  
 Restructuring charges (1)   1,076      -       1,076      -   
 Tax effect of adjustments (2)   (1,320)    (1,599)    (3,424)    (4,317)
 Adjusted net income$  3,753   $  1,741   $  11,330   $  8,892  
          
         
 Reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share:
         
  3 months ended: 9 months ended:
  9/30/17 9/30/16 9/30/17 9/30/16
 GAAP earnings per diluted share$  0.04   $  0.02   $  0.15   $  0.07  
 Share-based compensation   0.04      0.05      0.15      0.20  
 Acquisition-related intangible amortization   -       0.01      -       0.03  
 Restructuring charges (1)   0.02      -        0.02      -   
 Tax effect of adjustments (2)   (0.03)    (0.04)    (0.08 )    (0.10)
 Adjusted earnings per diluted share$  0.08   $  0.04   $  0.25   $  0.20  
         
 Diluted share count   45,420      43,559      45,081      43,559  
         
 (1) Restructuring charges include termination and retention benefits and the impairment of certain capitalized software projects in connection with our 2017 Seattle restructuring plan.
 (2) Adjusted earnings per diluted share assumes a long-term projected tax rate of 40%
  
         
 Reconciliation of GAAP net cash provided by (used in) operating activities to free cash flow:
         
  3 months ended: 9 months ended:
  9/30/17 9/30/16 9/30/17 9/30/16
 Net cash provided by (used in) operating activities$  6,702   $  12,814    $  27,383   $  (52,451)
 Purchases of property and equipment   (210)    (377)    (1,159)    (4,513)
 Additions to capitalized software   (154)    (459)    (1,138)    (3,963 )
 Free cash flow (1)$  6,338   $  11,978   $  25,086   $  (60,927)
         
 (1) Includes share-based compensation liability payments of:   -     (754)    -     (86,684)

Source: CommerceHub, Inc.

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