Revenue of $25.2 million increases 9%, $0.05 GAAP EPS, and $0.08 adjusted EPS Signs Top 10 U.S. Retailer and First U.K. Drop-Ship Retailer

ALBANY, N.Y., Aug. 02, 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 June 30, 2017.

"We are pleased with the solid second quarter results we announced today, including continued revenue growth and expanding profitability," said Frank Poore, CommerceHub's Founder, President and CEO. "We are excited to announce the addition of two strategic retailer customer wins during the quarter, making four year-to-date and delivering on the high-end of our goal of 2-4 new retailer customers per year. One is a top 10 U.S. retailer, and the other marks our first retail drop-ship customer in the U.K. The U.S. win demonstrates our market leadership and our ability to deliver high-volume drop-ship fulfillment at scale. The U.K. win establishes a beachhead for our drop-ship offerings and should help to further unlock the U.K. market for CommerceHub."

"In addition to $2.2 million of net income for the quarter, we generated $8.6 million in adjusted EBITDA, representing 34 percent of revenue for the quarter and a 7 percentage point improvement over the same period last year. We also delivered strong free cash flow and continued to pay down debt, strengthening our net cash balance," said Mark Greenquist, CommerceHub's CFO. "We are pleased with our recent customer wins and believe this new U.S. retailer could eventually become a top 10 customer for CommerceHub."

Second Quarter 2017 Financial Highlights
  • Revenue was $25.2 million, a 9% year-over-year increase from $23.1 million in 2016. Core drop-ship revenue, which excludes revenue from our demand channel solutions, increased 14%.
  • Gross margin was 78%, compared to 77% in 2016.
  • Adjusted gross margin was 78%, compared to 75% in 2016.
  • Net income was $2.2 million, or $0.05 per diluted share, compared to $4.4 million, or $0.10 per diluted share, in 2016.
  • Adjusted net income was $3.7 million, or $0.08 per diluted share, compared to $2.6 million, or $0.06 per diluted share, in 2016.
  • Adjusted EBITDA was $8.6 million, compared to $6.3 million in 2016.
  • Operating cash flow was a positive $7.1 million, compared to a negative $73.3 million in 2016, which was impacted by a non-recurring cash payment of $78.5 million in share-based compensation related to our spin-off from Liberty Interactive.
  • Free cash flow was a positive $6.5 million, compared to a negative $76.5 million in 2016. 
  • Cash at quarter end was $6.8 million and the total amount outstanding under our credit facility was $6.0 million.

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

  • Total customer count at June 30, 2017 was 11,274, up from 9,730 at June 30, 2016, or 16% year-over-year.
  • Drop-ship order volume growth was 17% in the second quarter.
  • We expanded our CommerceHub for Retailers network with the signing of a top 10 U.S. retailer that we believe has the potential to become a top 10 customer for CommerceHub. This win is a conversion of an existing in-house drop-ship program, which we believe demonstrates the complexity of such programs and the value CommerceHub can deliver through increased operational efficiencies, improved customer service and capital-efficient expansion of product assortments.  
  • We signed our first U.K. retailer drop-ship customer. This is a mid-sized U.K. retailer seeking to expand its ecommerce business by leveraging CommerceHub's drop-ship model, while reducing inventory risk and operating costs.

Conference Call DetailsThe 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, August 2, 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) 219-6912International Toll Participants Dial-in Number: (574) 990-1026Conference ID/Passcode: 55684519
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 StatementsThis 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, 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 presentation, 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 MeasuresIn 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 and acquisition-related intangible amortization. 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 and acquisition-related intangible amortization. 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 and share-based compensation expense, less interest income and income tax benefit.  We define "adjusted net income" as net income or loss plus share-based compensation, acquisition-related intangible amortization and the tax effect 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 and the tax effect 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. 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.

Consolidated Statement of Operations
(in thousands except per share data)
(unaudited)
                 
                 
    3 months ended:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  Revenue $  25,208     $  23,103     $  49,776     $  45,193  
  Cost of revenue    5,639        5,320        11,155        11,425  
  Gross profit    19,569        17,783        38,621        33,768  
  Gross margin   78 %     77 %     78 %     75 %
                 
  Research and development    6,396        3,444        12,311        8,314  
  Sales and marketing    2,387        2,384        4,318        6,001  
  General and administrative    6,945        4,675        13,884        15,199  
  Operating expenses    15,728        10,503        30,513        29,514  
                 
  Operating income    3,841        7,280        8,108        4,254  
                 
  Interest (expense) income, net    (229 )      63        (456 )      229  
                 
  Pre-tax income    3,612        7,343        7,652        4,483  
  Income tax expense    1,367        2,919        2,948        2,049  
                 
  Net income $  2,245     $  4,424     $  4,704     $  2,434  
                 
  Earnings per share:              
  Basic $  0.05     $  0.10     $  0.11     $  0.06  
  Diluted $  0.05     $  0.10     $  0.10     $  0.06  
                 
  Share count (1):              
  Basic    43,155        42,703        43,068        42,703  
  Diluted    44,957        42,703        44,842        42,703  
                 
                 
  (1) Share counts for pre-spin periods represent the shares issued at spin-off on July 22, 2016.    
                 

CommerceHub, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
         
         
    6/30/2017   12/31/2016
  Assets      
  Cash and cash equivalents $  6,777   $  6,471
  Accounts receivable, net of allowances    11,721      18,109
  Prepaid income taxes    3,012      4,311
  Prepaid expenses    1,533      1,549
  Total current assets    23,043      30,440
         
  Capitalized software, net    5,053      6,716
  Deferred services costs    4,837      4,989
  Property and equipment, net    7,283      7,629
  Goodwill    21,410      21,410
  Deferred income taxes    8,639      7,714
  Other long-term assets    1,524      1,122
  Total assets $  71,789   $  80,020
  ¿      
  Liabilities and Equity      
  Accounts payable and accrued expenses $  2,223   $  2,135
  Accrued payroll and related expenses    6,165      7,435
  Income taxes payable    8      7
  Deferred revenue    5,589      5,149
  Total current liabilities    13,985      14,726
  Deferred revenue, long-term    7,965      7,581
  Other long-term liabilities    1,995      1,135
  Long-term debt    6,000      26,000
  Total liabilities    29,945      49,442
  ¿      
  Equity:      
  Total equity    41,844      30,578
  Total liabilities and equity $  71,789   $  80,020
         

CommerceHub, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
                 
                 
    3 months ended:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  Cash flows from operating activities              
  Net income $  2,245     $  4,424     $  4,704     $  2,434  
  Adjustments to net income:              
  Depreciation and amortization    2,182        2,539        4,276        4,862  
  Amortization of debt issuance costs    55        -         111        -   
  Share-based compensation    2,617        (3,477 )      4,977        6,560  
  Deferred income taxes    (283 )      21,585        (925 )      19,214  
  Bad debt expense    187        222        591        255  
  Accrued interest income    -         (107 )      -         (273 )
  Loss on disposal of long-term assets    17        160        17        160  
  Working capital changes:              
  Accounts receivable    621        1,315        5,796        5,919  
  Prepaid expenses and other assets    (245 )      (11 )      (488 )      (420 )
  Income taxes, net    (2,376 )      (738 )      1,300        (738 )
  Deferred costs    (29 )      (103 )      152        (295 )
  Deferred revenue    490        (249 )      824        (31 )
  Accounts payable and accrued expenses    256        (1,827 )      593        231  
  Accrued payroll and related expenses    1,373        (1,973 )      (1,247 )      (867 )
  Share-based compensation liability payments    -         (78,494 )      -         (85,930 )
  Parent receivables and payables, net    -         (16,603 )      -         (16,346 )
  Net cash provided by (used in) operating activities    7,110        (73,337 )      20,681        (65,265 )
                 
  Cash flows from investing activities              
  Purchases of property and equipment    (257 )      (1,845 )      (949 )      (4,136 )
  Additions to capitalized software    (353 )      (1,321 )      (984 )      (3,504 )
  Collections on note receivable - Parent    -         36,380        -         36,380  
  Net cash (used in) provided by investing activities    (610 )      33,214        (1,933 )      28,740  
                 
  Cash flows from financing activities              
  Borrowings on note payable - Parent    -         28,664        -         28,664  
  Payments on revolver    (4,000 )      -         (20,000 )      -   
  Cash paid for debt issuance costs    -         (1,000 )      -         (1,000 )
  Cash received from exercise of stock options    233        21        1,557        73  
  Purchase of treasury stock    -         (3,600 )      -         (3,600 )
  Net cash (used in) provided by financing activities    (3,767 )      24,085        (18,443 )      24,137  
  Currency effect on cash    -         -         1        -   
  Net increase (decrease) in cash and cash equivalents    2,733        (16,038 )      306        (12,388 )
                 
  Beginning cash and cash equivalents    4,044        22,987        6,471        19,337  
  Ending cash and cash equivalents $  6,777     $  6,949     $  6,777     $  6,949  
                 

CommerceHub, Inc.
Supplemental Information
(in thousands)
(unaudited)
                         
                         
    3 months ended:   6 months ended:
    6/30/2017   6/30/2016   % Inc (Dec)   6/30/2017   6/30/2016   % Inc (Dec)
  Revenue by type:                      
  Usage revenue $  16,553   $  15,333     8 %   $  32,412   $  29,875     8 %
  Subscription revenues    6,943      6,228     11 %      13,840      12,346     12 %
  Set-up and professional services    1,712      1,542     11 %      3,524      2,972     19 %
  Total revenue $  25,208   $  23,103     9 %   $  49,776   $  45,193     10 %
                         
                         
    3 months ended:       6 months ended:    
    6/30/2017   6/30/2016       6/30/2017   6/30/2016    
  Share-based compensation:                      
  Cost of revenue $  89   $  (662 )       $  199   $  (158 )    
  Research and development    530      (747 )          1,101      1,113      
  Sales and marketing    300      (383 )          435      601      
  General and administrative    1,698      (1,685 )          3,242      5,004      
  Total $  2,617   $  (3,477 )       $  4,977   $  6,560      
                         
                         

CommerceHub, Inc.
GAAP to Non-GAAP Reconciliations
(in thousands)
(unaudited)
                 
                 
  Reconciliation of GAAP gross profit to adjusted gross profit:        
                 
    3 months ended:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  Gross profit $  19,569     $  17,783     $  38,621     $  33,768  
  Share-based compensation    89        (662 )      199        (158 )
  Acquisition-related intangible amortization    -         187        -         375  
  Adjusted gross profit $  19,658     $  17,308     $  38,820     $  33,985  
                 
  Adjusted gross margin   78 %     75 %     78 %     75 %
                 
                 
  Reconciliation of GAAP operating expenses to adjusted operating expenses:    
                 
    3 months ended:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  Operating expenses $  15,728     $  10,503     $  30,513     $  29,514  
  Share-based compensation    (2,528 )      2,815        (4,778 )      (6,718 )
  Acquisition-related intangible amortization    -         (250 )      -         (500 )
  Adjusted operating expenses $  13,200     $  13,068     $  25,735     $  22,296  
                 
                 
  Reconciliation of GAAP net income to adjusted EBITDA:        
                 
    3 months ended:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  Net income $  2,245     $  4,424     $  4,704     $  2,434  
  Interest expense (income), net    229        (63 )      456        (229 )
  Income tax expense    1,367        2,919        2,948        2,049  
  Depreciation and amortization    2,182        2,539        4,276        4,862  
  Share-based compensation    2,617        (3,477 )      4,977        6,560  
  Adjusted EBITDA $  8,640     $  6,342     $  17,361     $  15,676  
                 

  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:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  Net income $  2,245     $  4,424     $  4,704     $  2,434  
  Share-based compensation    2,617        (3,477 )      4,977        6,560  
  Acquisition-related intangible amortization    -         437        -         875  
  Tax effect of adjustments (1)    (1,125 )      1,198        (2,104 )      (2,718 )
  Adjusted net income $  3,737     $  2,582     $  7,577     $  7,151  
                 
  (1) Adjusted net income assumes a long-term projected tax rate of 40%    
                 
  Reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share:
                 
    3 months ended:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  GAAP earnings per diluted share $  0.05     $  0.10     $  0.10     $  0.06  
  Share-based compensation    0.06        (0.08 )      0.11        0.15  
  Acquisition-related intangible amortization    -         0.01        -         0.02  
  Tax effect of adjustments (1)    (0.03 )      0.03        (0.05 )      (0.06 )
  Adjusted earnings per diluted share $  0.08     $  0.06     $  0.17     $  0.17  
                 
  Diluted share count    44,957        42,703        44,842        42,703  
                 
  (1) 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:   6 months ended:
    6/30/2017   6/30/2016   6/30/2017   6/30/2016
  Net cash provided by (used in) operating activities $  7,110     $  (73,337 )   $  20,681     $  (65,265 )
  Purchases of property and equipment    (257 )      (1,845 )      (949 )      (4,136 )
  Additions to capitalized software    (353 )      (1,321 )      (984 )      (3,504 )
  Free cash flow (1) $  6,500     $  (76,503 )   $  18,748     $  (72,905 )
                 
  (1) Includes share-based compensation liability payments of:    -         (78,494 )      -         (85,930 )
                 
CommerceHub Investor Relations ContactSara Leggatinvestor@commercehub.com

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