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ChannelAdvisor Corp  (NYSE:ECOM)
Q4 2018 Earnings Conference Call
Feb. 13, 2019, 8:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to the ChannelAdvisor Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later there will be a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Traci Mangini. Ma'am, you may begin.

Traci Mangini -- Director of Investor Relations

Thank you. Good morning, and welcome to ChannelAdvisor's conference call for the fourth quarter 2018. My name is Traci Mangini, Director, Investor Relations, and with me on the call today are David Spitz, ChannelAdvisor's Chief Executive Officer, and Mark Cook, ChannelAdvisor's Chief Financial Officer.

This morning we issued a press release with details on our fourth quarter and 2018 performance as well as our outlook for the first quarter and full year 2019. 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 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 good -- 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 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 or Form 10-Q, as well as 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 adjusted EBITDA, which excludes depreciation, amortization, income tax expense, interest, stock based compensation expense, non-recurring severance and related costs due to the reorganization of our China operations in 2018 and a one-time charge for voluntary disclosure agreements related to sales taxes in 2017.

Our press release that we issued today includes GAAP to non-GAAP reconciliations for gross profit, gross margin, operating expenses, operating loss, operating margin, adjusted EBITDA, non-GAAP net loss and free cash flow. We also provide a GAAP to non-GAAP reconciliation schedule in our supplemental financial presentation posted in the Investor Relations section of our website at ir.channeladvisor.com. In addition to this reconciliation schedule, this presentation now includes supplemental financial information and operational metrics, which may be referenced on this call.

Finally, at times in our prepared comments or responses to analyst questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business and our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future.

With that, let me turn the call over to David for his prepared remarks.

David Spitz -- Chief Executive Officer and Board Member

Thank you, Traci, and good morning, everyone.

Today we'd like to touch on several highlights from the fourth quarter and the year where we see some challenges and review our solid progress against the strategic framework that we unveiled on our last earnings call.

We're pleased with our financial results for the fourth quarter. We achieved record quarterly revenue of $34.8 million, at the upper end of our guidance range, and posted very strong profitability with adjusted EBITDA of $5.8 million for the quarter, well above the high end of our guidance range, helping to drive a full year improvement of $4.2 million in operating cash flow compared to 2017.

I'm also pleased to announce that in 2018, we crossed over $10 billion in annual GMV for the first time ever, highlighting the scale at which we operate and the value we bring to our customers and help them compete effectively every day. Our market leadership was also reaffirmed by the most recent Internet Retailer magazine rankings, which came out just a couple weeks ago in which we were named the number one marketplace integration platform by a wide margin for the seventh year in a row, as well as the number one feed management platform and the top four digital marketing platform.

We also added 18 net new customers in the fourth quarter, including great brands like Guess, FootJoy and Avery Products. We were pleased to see positive momentum in this metric as it was the strongest sequential quarterly gain we've seen in net customer count in nearly two (ph) years. In fact, excluding China, where we faced a challenging year and which I'll discuss in more detail later, net customer growth in the quarter was seven -- was even stronger with a net gain of 27 compared to the third quarter.

For the full year 2018, our net customer count declined by seven, but again, excluding China, our net customer count actually increased by 40 for the full year, representing a considerable improvement from the last few quarters. We believe an increase in net customer count is a positive indicator that the work that we're doing to improve customer retention and grow our customer base is beginning to show results.

Speaking of customer retention, we made solid progress throughout the year in reducing churn. Churn is determined based on the value of revenue loss when a customer either fully terminates their contract with us or terminate use of a product while remains a customer under other contracts with us. We're pleased to share that our nominal dollar churn in the fourth quarter was down on a sequential quarter and year-over-year basis, dipping to the lowest level since the first quarter of 2017.

For 2018, churn as a percentage of revenue improved nearly a full percentage point compared to 2017 despite our challenges in China. And if we exclude China, revenue churn actually improved even more. And with the initiatives of our services team under Beth Segovia, we're confident in our ability to generate further improvements in 2019.

I'd also like to highlight the very strong performance we've seen out of our European and Australian regions, led by Jon Maury and Simon Clarkson respectively. Both geographies enjoyed strong sales performance and considerable acceleration in revenue growth in 2018 and, on a combined basis, posted revenue growth of over 20% compared to 2017, buoyed by improved trends in customer count and annual contract value or ACV as well as with a heavier concentration of brands.

This performance increased our international revenues to 24% of total revenue for 2018, up 200 basis points from 2017 despite revenue headwinds in our China region and it highlights how we can perform when we hit our stride with strong leadership. We're lucky to have John and Simon running those two regions and we're excited to see Simon and his team continue to execute now that his role has expanded to include responsibility for China and all of Asia-Pacific.

Digital marketing made a comeback for us in 2018, posting solid revenue growth after years of decline, driven in large part by strong adoption of Amazon advertising by both brands and retailers as well as improved customer and revenue retention during the year. Digital marketing remains a very competitive space, but we feel we are well positioned in the market as traditional marketplaces like Amazon and eBay builds up sizable advertising capabilities and traditional advertising channels like Google and Facebook launch new marketplaces. We firmly believe no one is better positioned to help brands and retailers navigate this increasing complexity than ChannelAdvisor with our integrated platform and global footprint.

Let me turn to a couple of areas where we saw challenges, and I'll start with China since I've already mentioned the region several times. As I said on the last call, we experienced execution issues in China last year, leading to a revenue contraction. We moved aggressively to realign our expenses with a lower revenue outlook for the region in the fourth quarter and, as I just mentioned, moved China under Simon's leadership in Asia-Pacific. While we anticipate that China will remain a drag on revenue growth for the next several quarters, we're confident that Simon and team will improve our sales execution and put us on a path to renewed revenue growth.

In any case, our headwinds in China contributed to a downtick in the metric we refer as -- we refer to as net bookings as a percentage of revenue which is the sum total of our new business bookings minus churn and presented as a percentage of overall revenue. For 2018, this metric was 8% compared to 10% in 2017. However, excluding our China operations, net bookings as a percentage of revenue was stable at 10%. The other headwind we saw in the fourth quarter specifically was a deceleration of marketplace GMV on both eBay and Amazon in North America, especially in December, which are our number two and number one GMV channels respectively and which is consistent with reported results from both of these companies and affected our variable revenue growth rate.

Taking into account eBay's growth outlook and the reality that Amazon already represents roughly half of US e-commerce, we assume that GMV growth rates on both channels in the US is likely to be lower going forward and are incorporating that into our outlook as well.

Now, looking at the bigger picture, while we believe we can make continued incremental improvements to sales and sales efficiency, we've concluded that trying to drive improved growth exclusively through a relatively expensive direct sales model is not likely to produce the results we want with an acceptable return. And so we have to look for additional more efficient ways to drive growth. This leads me back to the strategic framework we unveiled last quarter, which comprises three pillars, and I'd like to highlight the progress we're making in each.

To refresh everyone, the three pillars of our strategic framework are: number one, protecting and optimizing our core business for incremental growth and profitability; number two, winning with brands as a strategic customer segment; and number three, investing in indirect channels to drive more leverageable growth.

Starting with the first pillar, protecting and optimize our core business. What we mean by this is first, an acknowledgment that we need to balance our sales and marketing expense with improvements in efficiency to drive incremental revenue growth more profitably. In addition to improving the efficiency of our direct sales force, we have a number of projects under way to maintain and extend our leadership in our core market segments such as expanding our already market leading breadth of marketplace support and enhancing our capabilities in areas like shipping and logistics.

For example, in 2018 we added 30 new marketplaces to our platform, the most we've ever added in one year. Google Shopping Actions is a great example, where we've onboarded hundreds of customers and doubled the number of customers generating GMV from the third quarter to the fourth quarter. Despite being one of the newest marketplaces we support, it was already our seventh largest marketplace in Q4 measured by GMV.

In addition to significantly expanding our supported marketplaces, we continue to invest in our platform to help unlock additional value for our customers. We've discussed for a while our focus on improving the ease of use of our platform. We're excited with our progress and we expect to launch a new user interface in April that was designed to substantially improve the user experience of the platform for our customers by helping them more easily find and utilize more of our rich platform capabilities. This should not only help to further enhance revenue retention and existing customer penetration, but it lays the necessary groundwork to support our indirect sales efforts, which I will discuss in more detail in a moment.

Building on the feasibility work, we also intend to bring to market new self-service apps in 2019 that incorporate a zero touch signup and onboarding process that should expand our reach and enable a broader set of potential customers to leverage our capabilities likely through one or more strategic partners and without involving our direct sales force. All of this highlights continued innovation on our platform and we intend to continue investing and making ChannelAdvisor the best choice in the industry. We believe this strategy will allow us to drive incremental net bookings and revenue growth while also achieving improved margins, as evidenced by our sequential improvements in quarterly profitability during the course of 2018. We expect this profitability trend in adjusted EBITDA to continue in 2019.

Our second strategic pillar is to win with brands. On our third quarter call, we talked a bit about how we view brands as a strategic customer segment as digital disruption continues to squeeze middlemen out of the e-commerce picture and drives more brands to go direct to consumer or at least become more digitally savvy in how you're seeing a secular rotation between brands and retailers in our business mix. Again, these figures are imprecise but they are directionally useful in understanding the trends in our business, and those positive trends we mentioned for the third quarter continued in the fourth quarter.

We estimate that brands accounted for approximately 20% of our revenues for 2018 and our customer count as of December 31st, 2018, and our revenue growth from brands was approximately 30% year-over-year compared to low single digit revenue growth for retailers. Further, in 2018, average revenue per customer was more than 20% higher for brands compared to retailers and churn as a percentage of revenue was several percentage points lower for brands than churn for retailers.

Fundamentally, brands are not only where the puck is going in e-commerce but also the (inaudible) we see with these customers are favorable in just about every dimension.

We have a lot to offer brands already and believe we offer the most complete horizontally integrated and global platform to help brands go digital, whether it's connecting them more efficiently to online retailers, helping them sell on marketplaces, leverage drop shipping or adopt digital marketing channels like Amazon advertising and helping direct consumers to trusted retail partners with Where to Buy. We'll continue to focus on bringing brands innovative solutions to help them win in e-commerce.

The third and final pillar of our strategic framework is to significantly expand our indirect channels with the specific objective of driving more leverageable revenue growth. We anticipate some of this growth will be with long-standing strategic partners like Google and eBay, some will come from our growing referral program, some will come from building our reseller program and some will even come from embedding our capabilities in other platforms, which is an exciting and emerging area for us.

Let me touch on progress in a few of these areas. Our referral program has grown considerably to include a growing number of partners, especially in the logistics space. Building on our early success with FedEx, we've expanded our list of strategic partnerships to include DHL, UPS, XPO Logistics and most recently DB Schenker. In all of these cases, we're helping our logistics partners connect their customers to e-commerce channels and drive growth, a win-win for everyone involved. As an example, our strategic partnership with UPS went live in January and allows eligible customers to potentially receive subsidies for using ChannelAdvisor. With thousands of customers worldwide, we believe this program can generate substantial referral volume for us and help us close more deals.

Another area that's been really interesting is embedding our capabilities inside other platforms, like what's Stripe is to payments, ChannelAdvisor is to e-commerce. We've announced two strategic partnerships already under this framework: DHL, and most recently, TrueCommerce. In both of these scenarios, DHL and TrueCommerce customers have the benefit of accessing ChannelAdvisor's capabilities natively through DHL's and TrueCommerce's respective platforms.

In the case of TrueCommerce, this is a great example of an ideal strategic partnership striking a chord with each of our three strategic pillars by efficiently expanding our reach into the market and brands, creating an efficient source of quality leads for our sales team to upsell and adding new indirect revenue streams through a revenue share component. We believe these are early examples of untapped opportunity, where our market leading capabilities can be embedded in other platforms, expanding our reach and addressable market much more efficiently than we can through our direct sales force alone.

As to resellers, we continue to make progress with several potential partners and anticipate announcing at least one strategic reseller in 2019, again, with an eye toward efficiently expanding our reach into the market beyond our direct sales force.

In closing, we believe we had a successful 2018 and we are optimistic about the future. We believe we have the right strategic framework in place and that executing against our three pillars, optimizing our core, focusing on brands and investing in indirect channels positions us for continued growth and margin expansion in 2019 and beyond.

With that, I'll turn the call over to Mark for our financial update. Mark?

Mark Cook -- Chief Financial Officer

Thanks, David.

Now I'll discuss our fourth quarter and full year 2018 financial performance in more detail. And after, I'll follow with our guidance for the first quarter and full year 2019. As David suggested earlier during the call, we continued to advance the business in 2018 and finished the year with solid fourth quarter performance coming in at the higher end of guidance and well exceeding adjusted EBITDA expectations, reflecting good progress against our goal to deliver margin improvement.

Revenue in the fourth quarter was $34.8 million, which was a quarterly record for the Company and was achieved despite significant year-over-year revenue contraction for our China operations due to the business execution issues that David discussed. This, combined with decelerating GMV growth in December on our particularly strong revenue contribution from Where to Buy in the fourth quarter 2017, resulted in muted top line growth for the quarter. For the full year 2018, revenue was $131.2 million compared to $122.5 million for 2017, an increase of 7% year-over-year.

Our fourth quarter fixed subscription revenue at $25.7 million increased 3% from the year-ago period, reflecting challenges in China as well as the Where to Buy comparison I just mentioned. Fixed subscription revenue represents 74% of total revenue. Fixed subscription revenue for the full year 2018 was up 9%, reaching $100.1 million compared with $93.5 million in 2017 and represented 76% of total revenue for 2018, consistent with the prior year.

Variable revenue of $9.1 million for the fourth quarter decreased 0.5% from the year-ago period and represented 26% of total revenue. Variable revenue performance for the fourth quarter was dampened by deceleration in GMV growth in the latter part of December, which was consistent with macro consumer spending trends. Variable revenue was also negatively impacted by approximately $100,000 related to annual GMV reset (ph) customers under revenue standard ASC 606, which we adopted in 2018. Variable revenue for the full year 2018 increased 7% to $31.1 million from $29 million a year ago and represented 24% of total revenue for 2018.

Now looking at revenue by product. Our Marketplaces platform revenue was $24.7 million for the fourth quarter, down slightly compared to the same period a year ago, but increased to $96.3 million or up 4% for the full year 2018 from $93 million a year ago. The performance of our Marketplaces solution was largely the result of lower variable revenue in the quarter, which was impacted by the slowdown in GMV in the latter half of December. It should be noted that while our growth of Marketplaces revenue was down slightly, this was offset by solid growth in revenue from our strategic marketplaces related partnerships, which is recorded as other revenue. Marketplaces represent 71% of total fourth quarter revenue and 73% of full year 2018 revenue.

Digital Marketing revenue was $5.5 million for the fourth quarter, up 7% year-over-year, delivering a fourth straight quarter of year-over-year growth. In addition, revenue for 2018 increased to $18.9 million or about 9% from $17.4 million a year ago, reversing a prior trend of negative growth. We're pleased with Digital Marketing's performance, especially considering the highly competitive nature of the market. We attribute the growth in part to Amazon advertising, which boosted our record bookings in the fourth quarter. Digital Marketing represented about 15% -- 16% of total revenue for the quarter and 14% for the full year 2018.

The remaining 13% or $4.6 million in revenue in the quarter came from other revenue, which includes our Where to Buy platform for brands and, as mentioned earlier, strategic partner revenue resulting from our business development programs. For the full year 2018, other revenue increased to $16 million or (ph) 40% from $11.4 million in 2017. Within other revenue, Where to Buy revenue was up 10% year-over-year for the fourth quarter. Strategic partnership revenue also contributed nicely to the fourth quarter and increased 68% (ph) compared to the prior year ago.

We continue to identify and add new strategic relationships domestically and internationally such as recently announced partnerships with UPS, DHL, TrueCommerce and DB Schenker.

Before getting into some of the details on our customer metrics, we encourage you to see our supplemental financial presentation which Traci mentioned earlier that are posted on our website. These slides provide helpful information on certain of our customer metrics, including annual trends in customer count and committed annual contract value by customer tier. As a reminder, committed annual contract value or ACV is the fixed amount of annual fees as of a specified date for which a customer has a minimum contractual commitment as of that date and does not include any potential variable revenue or fees.

We ended the year with 2,833 customers, up 18 net new customers from the end of third quarter. The net increase was predominantly customers with greater than $30,000 in committed ACV and specifically the tier 4 (ph) customers having greater than $100,000 in committed ACV increased by 8 during in the quarter. For the full year 2018, total customer count declined by 7 primarily within the lower customer tiers. As David mentioned earlier, our customer count actually -- count, excluding China actually grew by 40. As of December of 31st, 2018, our customer total committed ACV was $105.1 million, up $5.2 million or 5% over the prior year. Customers with committed ACV over $100,000 contributed over $2.8 (ph) million to the total increased value. That was up 10% compared to December 31st, 2017, and demonstrate improved penetration for these large customers. Again, additional information on both customer count and ACV may be found in our supplemental financial presentation on our website.

An additional customer metric, which continued to grow, is average revenue per customer. For the full year 2018, this metric reached $46,286, an increase of 8% over the prior year.

Now moving down the P&L. As in the past, my comments regarding expenses will be on a non-GAAP basis and all comparisons are on a year-over-year basis unless otherwise specified. Gross margin was 79.1% for the fourth quarter and 78.2% for the full year 2018, which was up 120 basis points compared to full year 2017.

Turning to expenses. Sales and marketing expense decreased 5% in the fourth quarter from the year-ago period and research and development expense also decreased about 11% compared to the year-ago period. However, we did not slow down investing in our product, as we increased capitalized software development costs related to the new product development initiatives. These operating expense declines were offset somewhat by a 4% increase in general administrative expenses from the same period last year, which included higher costs related to our first year implementation of Section 404(b) of the Sarbanes-Oxley Act.

Before I'm back to our past remarks from Analyst Day and earnings call in 2018, we believe we can drive margin improvements through gains in sales and marketing efficiencies as well as through increased sales productivity and expansion of our indirect sales channel. We believe we're making solid progress in this regard and to that point for the full year 2018, operating expenses increased by only 2.6% compared to 2017. The small increases in total operating expense, combined with 8.7% increase in gross profit, enabled us to improve our operating margins for the year.

Due to the higher revenue and gross profit, along with strict cost controls, adjusted EBITDA and non-GAAP net income experienced strong year-over-year improvement from both the fourth quarter and the year. Adjusted EBITDA was $5.4 million for the fourth quarter, up (ph) $3.9 million for the prior year period and significantly above the top end of our guidance range of $4 million. For the full year of 2018, adjusted EBITDA was $9.8 million, up $4.6 million compared to the $5.2 million for 2017. Non-GAAP net income was $4 million in the fourth quarter compared to $2.4 million for the fourth quarter of 2017 and was $3.6 million, up $5.7 million compared with $2.1 million loss for 2017.

Turning to the balance sheet. We finished the year with cash and cash equivalents of $47.2 million, a decrease of $1.1 million during the fourth quarter and $6.2 million since the beginning of 2018 -- an improvement of about $6 million over 2017. Operating cash flow was a positive $134,000 for the fourth quarter and positive $1.2 million for the full year 2018. The total cash decrease for the fourth quarter and 2018 year was largely driven by continued investment in our platform.

Now I will turn to guidance. Our goal is to drive revenue growth and margin expansion with continued investments in key growth initiatives and our strategic plans. Our guidance reflects anticipated headwinds related to the China operations for the next few quarters and takes into account recent GMV trends. However, we expect that growth rates will improve during the 2019 year as the benefits of our core platform, brands and indirect sales initiatives begin to have a more meaningful impact. Giving thoughtful consideration for these factors and to our historical trends, for first quarter of 2019 we anticipate revenue to be in the range of $31.5 million to $32 million and adjusted EBITDA to be in the range of $600,000 to $1 million.

For the full year 2019, we anticipate revenue to be in the range of $136 million to $139 million, representing a year-over-year growth of 4% to 6% and adjusted EBITDA of $13 million to $15 million, representing adjusted EBITDA margin of 10% and growth of 43%, both at the midpoints over 2018.

We have made solid progress in 2018 to our combined revenue growth and margin improvement and have many more exciting initiatives under way, all of which make us optimistic about the future.

With that, operator, we'd like to now open the call up to questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Tom Forte with D.A. Davidson. Your line is open.

Tom Forte -- D.A. Davidson -- Analyst

Hi, good morning. Thanks for taking my question. Sorry two questions. One, advertising is becoming an increasingly acceptable form in e-commerce land, not just Amazon but eBay and Wayfair. So as more companies beyond Amazon expand their advertising efforts, what does that mean for ChannelAdvisor? And then number two, it sounds like despite Amazon getting larger and sales growth decelerating and eBay facing some challenges, but you have a lot of initiatives in your control basically to drive your revenue performance and margin performance. So is it right to think that you can sustain a high single digit, low double digit top line growth rate from your indirect sales force efforts, brand efforts, reducing churn, all the issues within your control independent of what's going on with Amazon and eBay? Thanks.

David Spitz -- Chief Executive Officer and Board Member

Hey Tom, Thanks for the question. Yeah, I think on the advertising side, we definitely see it becoming increasingly relevant and important in the world of marketplaces, in fact, I think it's fair to say that there is increasing crossover between marketplaces and traditional advertising channels. I've touched on the element on a couple of these calls. And I think this fact should play to our favor because our platform incorporates the digital marketing as well as marketplace capabilities, and it's much easier to manage that in one place, right, because it's -- those are holistic programs. You don't want to be managing your advertising, for example, on Amazon and some other silo and then managing your sales or your pricing in another, otherwise you're going to get a really inefficient -- you're not going to close the loop, and so it's going to be inefficient. So we think that's a really interesting development and plays to our strengths, especially when it comes to brands because the advertising piece of Amazon is one of the key things that the platform attracts brands with. So we think that's a net positive for us. On your second point, I think I would agree with you. I think that we have a number of things in our control and I think what we've determined through this strategic framework is that really what we need to be focusing our time on is optimizing on our direct sales capability. But really focusing on indirect sales and our capabilities for brands. We see both of those as growth factors. We still generate -- even though it's fast growing for us when we look at our revenue lines, we still generate a relatively small proportion of our revenue from partnerships, indirect sales, et cetera. And that's something that we think can and should be significantly larger, and that's getting considerable time and attention from us as we go forward. And so we think that's the right thing to do. We think those are important opportunities for growth for us and that's where we're focusing our time.

Tom Forte -- D.A. Davidson -- Analyst

Okay. Thanks, David.

David Spitz -- Chief Executive Officer and Board Member

Thanks, Tom.

Operator

Thank you. Our next question comes from Matt Pfau with William Blair. Your line is open.

Matthew Pfau -- William Blair -- Analyst

Hey guys, thanks for taking my questions. First, wanted to hit on the customer increase in the quarter. And I realize there that China was definitely a headwind, but I guess in terms of total customer churn in the quarter was there a reduction in the number of customers that churn that helped the sequential increase number or was it just the fact that you had a really big number of gross additions in the quarter, and so it's sort of overcame that the customer churn you've been seeing over the year?

David Spitz -- Chief Executive Officer and Board Member

Yeah. So thanks Matt. I don't have a specific number for you in terms of nominal customer count lost. But what I can tell you is that our team over the course of 2018 made phenomenal progress on a number of revenue retention initiatives, everything from much broader account coverage through our account management and customer success teams to instrumentation in the product to make sure we have better visibility into how customers were leveraging sticky capabilities. And so there was just a lot that the team did over the course of the last year to make really substantial progress. And in fact, we started out -- I think I was pretty clear on this a call or two ago, we started out a little bit in the whole after the first quarter from a revenue churn perspective, but the team really did a great job over the course of the year. And I did say in the call that nominal dollar churn was down sequentially and year-over-year. So I think the customer count performance was significantly -- benefited significantly from those revenue retention efforts.

Matthew Pfau -- William Blair -- Analyst

Okay, great. And then, want to hit on the partner opportunity. And so with some of your partners, names like FedEx, UPS, obviously some very large companies there. But I'm guessing partners are still a fairly small portion of overall revenue. So perhaps, how -- you could help us sort of frame how we should think about the revenue opportunities when we see some of the big name partners like a FedEx or UPS.

David Spitz -- Chief Executive Officer and Board Member

Yeah. So to a certain extent, we're going to have to find out, and there's a couple of different ways partners (technical difficulty) show up in our P&L. One is actually direct revenue and partner revenue today shows up in our other revenue line item, which as you can see is growing pretty nicely. And so that's situations where we have a partner, who is actually paying us directly for certain types of services, for example, I mentioned the OEM deals or the plumbing (ph) deals where we're being embedded inside of other people's platforms. In those scenarios, we would derive revenue directly from the partner. There are other scenarios where a partner may be sending referrals over and they may be not paying us directly, but rather benefiting our team by driving good leads through our sales team and incremental bookings as a result. And so these partners have different flavors and they're going to show up in the different ways, but the common theme that's important to us is that these partners represent access to and reach into the market that we think is much more efficient than just continuing to invest incremental dollars in our direct sales efforts. One of the harder things about our business is determining the next prospect to call, right. We know that there are relatively large number, for example, with Amazon sellers, et cetera. But there isn't a list that you can go by, and even if you have an Amazon ID that you see on Amazon website converting that into a phone number or an email of the decision-maker, that's a pretty expensive process, that scale, and so many of these partners have thousands, not 10s or even hundreds of thousands of customers who in many cases are looking for e-commerce solutions. They have an existing relationship with a partner. And so a warm handoff or a reselling model with -- through those partnerships represents a more leverageable path to those customers.

Matthew Pfau -- William Blair -- Analyst

Got it. That's it from me, guys. Thanks a lot for taking my questions.

David Spitz -- Chief Executive Officer and Board Member

Thanks, Matt.

Operator

Thank you. Our next question comes from Ryan MacDonald with Needham & Company. Your line is open.

Ryan MacDonald -- Needham & Company -- Analyst

Good morning, David and Mark. First off, on the customer retention efforts, can you talk about what segments, as you divided up by committed ACV, you saw the most success in 2018?

David Spitz -- Chief Executive Officer and Board Member

Yeah, great question. So you will recall, Ryan, that customer and revenue retention tends to be more than anything else correlated to the size of the customer and that's been true I think for a long time for us. So what I would say is that, where we saw probably improve -- the biggest improvement in retention is toward the middle and smaller end of our customer segments. The larger ones I think weren't always really good in strong revenue retention. But what we didn't have as, just an example, historically, is account coverage at scale at the lower end of our customer base or as I said earlier, the instrumentation and our products that we could really segment which customers are using which capabilities most effectively and how do we drive for example educational campaigns to those that may not be leveraging the platform to its fullest capability to help them do that. And so I would say it was fairly broad-based across our customer base, but probably most beneficial further down the stack because that was where there was the biggest opportunity for improvement.

Ryan MacDonald -- Needham & Company -- Analyst

Got it. And following up on that a little bit, as you're looking at this opportunity with brands and the success that you've had in 2018 with that 30% growth, is that coming more from -- starting with very small emerging brands at the, say 15,000 (ph) to 30,000 (ph) segment and growing with the business as they expand and grow on the platform? Or is it coming more from just net new brands added to the platform and maybe how you see that trajectory moving into 2019?

David Spitz -- Chief Executive Officer and Board Member

Yeah. So I'd generally say it's net new brands coming onto the platform and expanding. We certainly work with a number of smaller emerging brands, but I would say we're probably from a revenue perspective, seeing a bigger benefit from larger, traditional CPG, FMCG type companies that are all I think at this point wake to the fact that e-commerce is disrupting their traditional path to the consumer and they're seeking new ways to engage consumers, sometimes more directly and sometimes through different types of channels than they've had before. And it's -- some of it's new logo acquisition. I mentioned a few names on the call, but some of it is also align and expand, right. So what is true is that we frequently, even if we're working with a large global brand, let's say, a CPG company, we typically initiate that relationship at a single specific brand and maybe even in a limited geography, maybe one or two countries. And what we frequently see is that, once we are working with the brand and you've gone through the procurement and the legal process and you're an approved vendor et cetera, other brand managers or other geographies then seek to standardize on that solution. So part of our strategy is, obviously, to continue winning those brands and expanding with them, but also developing and bringing to market new solutions to help them address additional challenges that they have in the market.

Ryan MacDonald -- Needham & Company -- Analyst

Great. That's it from me. Thanks.

David Spitz -- Chief Executive Officer and Board Member

Thanks, Ryan.

Operator

Thank you. Our next question comes from Jason Celino with KeyBanc Capital Markets. Your line is open.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Hey guys, thanks for taking my question. Appreciate the call. I kind of wanted to go into your EBITDA guidance a little bit. So I think for 2019 guidance (inaudible) about 10% EBITDA margins. That's about 250 basis points of margin expansion over 2018. I mean, what areas do you think will see the most leverage coming this year? And then, going forward, how should we think of margin expansion for the overall business? Thank you.

Mark Cook -- Chief Financial Officer

Yeah, thanks for the question, Jason. As we've indicated in the past, we're cognizant of different expense areas like sales and marketing, as an example, we've talked about that being a focus. And I think we're very clear about expanding our indirect and channel efforts. I think that's an area that we'll be very focused on mitigating growth in expense in that area. And the same is true with G&A. We're looking at G&A as we start to scale a little bit in terms of revenue of seeing some benefits in that area. So those are the kind of the two key areas that we're focused on.

Jason Celino -- KeyBanc Capital Markets -- Analyst

And then as far as margin expansion maybe beyond 2019, I mean, how should we think about that? Should we expect continued margin expansion going forward? Or I mean, what are your thoughts?

Mark Cook -- Chief Financial Officer

Yeah, we'd expect so. I think as we've indicated publicly in the past, kind of the next step would be toward the kind of the middle of '20 we would achieve a combination of revenue growth and EBITDA margin of 20%. So that's our next objective, so to speak, and I'm not saying we're going to achieve that in 2019, but we would expect to see achieve that over some period of time.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Okay. And then kind of last question around your fixed subscription revenues. I mean, on a reported basis, it was up 3% year-over-year. I mean, can you kind of quantify maybe that -- what that growth would have been, excluding the Where to Buy impact and then maybe excluding the China impact?

Mark Cook -- Chief Financial Officer

Yeah, I don't have exact numbers, but Where to Buy amount in 2017 was about $560,000 (ph). I mean, you can kind of quickly determine the percentage there. We haven't actually pulled out the amount of the China impact specifically, but it is -- but it did create a drag on the quarter compared to a year ago.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Okay. And then -- I think it was $560,000 (ph), that was for Q4 only, right?

Mark Cook -- Chief Financial Officer

That's correct.

Jason Celino -- KeyBanc Capital Markets -- Analyst

Okay, great. Thank you.

David Spitz -- Chief Executive Officer and Board Member

Thanks, Jason.

Operator

Thank you. (Operator Instructions) Our next question comes from Zach Cummins with B. Riley FBR. Your line is open.

Zach Cummins -- B. Riley FBR -- Analyst

Hi, good morning. Thanks for taking my questions. So just starting off. Can you talk about your performance on all of your other marketplaces outside of Amazon and eBay?

David Spitz -- Chief Executive Officer and Board Member

Yeah So the trend that we've seen historically where the longer tail of marketplaces is larger than Walmart and grew faster than Walmart continued in Q4. So as I mentioned, we added a record number of marketplaces last year. Frequently, the ones that we're adding in the long tail tend to be category specific or geographically specific, and so they're not necessarily going to appeal to every seller on our platform, but maybe to specific categories of sellers or sellers in a particular country or region. But having said that, in aggregate, they are sizable. They do represent in aggregate our third largest marketplace and continue to be our fastest-growing marketplace, if you look at them in aggregate. So we think this is an important strategy. It does give us I think by far the broadest set of capabilities in the market and in many cases, they're relatively low effort for us because the marketplaces come to us interested in attaching to our high-quality seller base and typically integrate to us, right. So these are not very significant R&D efforts on our part to maintain these integrations.

Zach Cummins -- B. Riley FBR -- Analyst

Understood. That's helpful. And then second question for me, as you're looking to secure a major reseller partner in 2019, can you talk about maybe some of the prospects or the progress along that front? And then are you anticipating there to be really any sort of contribution from this indirect reseller channel in 2019?

David Spitz -- Chief Executive Officer and Board Member

Yeah. So -- obviously, I can't talk about specific names. But we are having a number of discussions that I think will bear fruit. And as I said, I would anticipate at least one reseller in the course of 2019. And we're really focused on a smaller number of highly strategic relationships as opposed to a large number of more tactical relationships. So we're focusing on our discussions on those that we think could give us access to a significant set of potential customers. I would expect depending on when we ultimately sign an agreement that we would see some contribution this year. I think it will be fairly preliminary, so we're not anticipating a significant amount of revenue this year specifically from a reseller perspective.

Zach Cummins -- B. Riley FBR -- Analyst

Understood. That's helpful. Well, congratulations on a strong quarter and best of luck in 2019.

David Spitz -- Chief Executive Officer and Board Member

Thanks, Zach.

Mark Cook -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from David Gearhart with First Analysis. Your line is open.

David Gearhart -- First Analysis -- Analyst

Hi, good morning. Thank you for taking my questions. So my first question, I just wanted to ask if you could talk a little bit about the pipeline in bookings, maybe excluding China, and talk a little bit about rep productivity. And I think you mentioned before in a prior call about reps exceeding internal plan. So just wanted some color on that front. Thank you.

David Spitz -- Chief Executive Officer and Board Member

Yeah. So reflecting what I said in the -- in my comments, China was obviously a tough area for us last year, and I'm bullish about what our new leadership can do there. I think -- I do think it will take some time to rebuild our sales credibility and sales execution in China. But I'm confident that we have the right leadership in place. Super-excited about what we've seen coming out of Europe and Australia, and Europe is a combination of our teams in the UK and Germany doing really, really well last year. I think US is doing reasonably. I'd say that US is still work in progress. It's still significantly more productive sales team compared to other geographies, just given that it's our originating region. But we think that there is -- if you look at the net bookings as a percentage of revenue, which I said, excluding China, was stable at 10%, and if you assume that we had some uptick in performance from our European and Australian teams, you can see that the US is still kind of pushing forward, but I think still a work in progress for us.

David Gearhart -- First Analysis -- Analyst

Okay. And then last question. It's been a while since you've talked about the drop ship offering. Just wondering if you could update us on that product and the number of relationships you have there and how things are trending. Thank you.

David Spitz -- Chief Executive Officer and Board Member

Yeah. So that continues to grow nicely for us. I think the number of retailers we have in the network is somewhere in the region of about 40. I may be off by a couple up or down. But significant growth in the retail network, and in particular, significant growth in the number of connections between suppliers and retailers and the amount of GMV that we're driving across that network. So that's become, I think, important not just for some of our existing customers who have a combination of marketplace and drop ship strategies. But again, the more we continue to rotate toward brands, that's a sort of core capability the brands look for when are seeking more optimal connections to various retailers out there. So we've signed -- I think I talked in the last quarter about a major beverage company that was using us to do drop shipping across actually Amazon and Walmart, in particular. So this was a very large brand that was using us not specifically for third-party marketplace capabilities but for drop shipping. So overall, I'm pleased with the progress we're making there. And I think it's a good piece of our holistic strategy, especially for brands.

David Gearhart -- First Analysis -- Analyst

Great, thank you. That's it for me.

David Spitz -- Chief Executive Officer and Board Member

Thanks, David.

Operator

Thank you. I'm showing no further questions. At this time, I'd like to turn the call back over to David Spitz for closing remarks.

David Spitz -- Chief Executive Officer and Board Member

Great. Thank you, everyone, and we look forward to speaking with you again soon.

Operator

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.

Duration: 48 minutes

Call participants:

Traci Mangini -- Director of Investor Relations

David Spitz -- Chief Executive Officer and Board Member

Mark Cook -- Chief Financial Officer

Tom Forte -- D.A. Davidson -- Analyst

Matthew Pfau -- William Blair -- Analyst

Ryan MacDonald -- Needham & Company -- Analyst

Jason Celino -- KeyBanc Capital Markets -- Analyst

Zach Cummins -- B. Riley FBR -- Analyst

David Gearhart -- First Analysis -- Analyst

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