ChannelAdvisor (ECOM) Q2 2019 Earnings Call Transcript

ECOM earnings call for the period ending June 30, 2019.

Motley Fool Transcribing
Motley Fool Transcribing
Aug 8, 2019 at 11:23PM
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ChannelAdvisor (NYSE:ECOM)
Q2 2019 Earnings Call
Aug 08, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to the Q2 2019 ChannelAdvisor earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Traci Mangini. You may begin.

Traci Mangini -- Director of Investor Relations

Thank you, Eugene. Good morning and welcome to ChannelAdvisor's conference call for the second-quarter 2019. My name is Traci Mangini, director, investor relations, and with me on the call today are David Spitz, ChannelAdvisor's chief executive officer; Rich Cornetta, ChannelAdvisor's chief financial officer; and Beth Segovia, ChannelAdvisor's newly appointed chief operating officer. This morning, we issued a press release with details on our second-quarter 2019 performance as well as our outlook for the third quarter and full-year 2019.

This press release can be accessed on our 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. Now 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 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 results are summarized in the press release that we issued today. For a further discussion of our 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, and stock-based compensation expense. Our press release that we issued today includes GAAP to non-GAAP reconciliations of 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 on the Investor Relations section of our website at ir.channeladvisor.com. And finally, at times in our prepared comments or responses to analysts' questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results.

Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to David for his prepared remarks.

David Spitz -- Chief Executive Officer

Thanks, Traci, and good morning, everyone. We're pleased to report second-quarter revenues of $31.9 million, near the high end of our guidance range. Continued strong expense discipline also yielded adjusted EBITDA of $3.0 million, significantly above our guidance range and up over 600 basis points as a percentage of revenue compared to the same period last year. Free cash flow of $2.3 million in the quarter was also very strong.

Overall, GMV performance was stable with continued weakness on eBay, offset by strength on Amazon and Walmart. We believe Amazon, where we found uptick in GMV growth in the second quarter compared to the first quarter, saw incremental share gains from its investments and one-day Prime delivery. We also saw good results with newer Marketplaces, in particular, Google Shopping Actions after launching a year ago became our fourth largest marketplace by GMV in the second quarter with more and more sellers going live. Target+, while still early and invitation-only, has also shown a very strong results for sellers.

We ended the quarter with 142 marketplace integrations globally, up from 133 at the end of last quarter, highlighting our industry-leading breadth of channel support. Importantly, our overall sales performance bounced back from a tough first quarter with a few key highlights I'd like to touch on. First, bookings in the quarter were the best we've seen in two years, although this partly reflects deals we carried over from the first quarter. Coupled with continued improvements in churn and downgrades, we also had our best overall net bookings performance since the fourth quarter of 2017, indicating incremental progress.

Second, the quarter included continued strong performance in our EMEA and Australia regions with solid revenue and bookings growth in each, setting the stage for a positive revenue growth outlook in both regions. Despite continued headwinds in China, our international revenues increased 6% in the second quarter compared to the same period last year, partially offsetting a decline in the U.S., and now represent more than 25% of our total revenues, reflecting the strength in the EMEA and Australian operations. We also achieved a historic high in terms of average deal value for new logos in the second quarter. And related, about a third of our new logos sold in the quarter were with brands, reflecting a continued focus on signing larger customers and working with more brands who are embracing digital channels.

We're also seeing early success positioning ChannelAdvisor as a full-stack e-commerce platform for brands, whether it's helping with digital marketing and Where to Buy to Marketplace management and to drop-shipping and fulfillment. Brands recognize us as a leader in the space with industry-leading breadth and a global footprint. In short, we're seen as a strategic partner that brands can grow with along their digital journey. We also continue to see strength in customer expansions reflecting the strategy.

Many of our newer customers start with a specific solution like Amazon advertising or drop-shipping and quickly grow into other solutions because they prefer to keep everything on one platform. For example, during the quarter, we expanded relationships with notable brands like ASICS and Avocado Green Brands. And although our net customer count declined in the second quarter, we saw the number of brand customers increase, which is positive. Customer account declines remain concentrated among smaller and retail-oriented customers.

Now despite our progress this year and some of those key highlights, our outlook for median-term revenue growth remains muted. While we're seeing strong momentum in EMEA and Australia, that momentum has been offset to a certain extent by headwinds in China and the U.S. We firmly believe we can improve our U.S. performance over time, especially in new customer acquisition, which has been a soft spot for us in recent quarters, but we also believe it is important to simultaneously improve our profitability to ensure that our investments are aligned with that growth outlook.

Consequently, we conducted a thorough review of our business during the second quarter to evaluate expense levels in various areas of the company, and concluded it was appropriate to implement reorganization of operations to reduce headcount and other costs to better align investments with our near-term growth profile and ensure that we're deploying capital appropriately. As a result of that evaluation, we decided to make two important changes to our business, which we implemented in late July. First, we made the strategic decision to discontinue our physical operations in China. China is an important region in e-commerce and has been part of our expansion strategy for a number of years.

After several years of early success, however, we began to face execution challenges in 2018, which we've spoken about previously. And while we've made progress improving results since our reorganization in China in late 2018, it has not been enough to indicate an inflection in revenue growth over the next 12 to 18 months. Coupled with the fact that our China operations have been a net consumer of cash and taking into consideration the less hospitable trade and political environment between China and the U.S. that currently exists, we decided that our current course and levels of investment were not sustainable without a faster return to revenue growth in the region, and so we made the difficult decision to discontinue physical operations there.

Now I want to be clear that we're going to continue to serve our customers in China as well as sell to new Chinese customers opportunistically from our base of operations in Australia, just as we did prior to opening our office in China a few years ago. Because China has a higher churn rate than other regions and because we do not expect to backfill that churn with comparable sales levels into China going forward, we do expect revenue declines to accelerate in China for the remainder of the year and are reflecting this in our updated guidance. Despite the expected impact to our revenues, we expect this change to positively benefit our adjusted EBITDA and cash flow for the remainder of the year and going into 2020. Second, given our modest revenue decline in the U.S.

compared to our growth in EMEA and Australia, we decided to reduce headcount in the U.S., some of which we anticipate to offset with increased hiring in Europe and Australia in support of these regions. These reductions were concentrated in G&A, where we felt we had opportunities to improve efficiency and in select areas where we intend to rebalance our headcount geographically. For example, we intend to migrate some of our customer support function to our Madrid facility, both to improve our support for our growing EMEA customer base and to improve our cost structure. We also took the opportunity to evaluate layers of management and span of control, and determined that there were select opportunities to simplify our management structure in the process.

Overall, this reorganization impacted about 10% of our employees with roughly half of that attributable to discontinuing our physical presence in China and the rest primarily confined to our U.S. operations. We believe that these headcount reductions while never easy should better align our expense profile with our growth expectations in various regions and improve our overall cash flow and profitability as reflected in our increased adjusted EBITDA guide for 2019 that Rich will detail in a moment. We're also announcing that Paul Forte, our chief revenue officer since 2017, has decided to leave ChannelAdvisor.

After spending last two and a half years committing to North Carolina, Paul would like to spend more time with his family and pursue new opportunities. Paul has made valuable contributions to our sales organization, which we can continue to build on going forward. And we like to thank him for his work and wish him the best of luck going forward. Consistent with our objective of streamlining our operations and simplifying our management structure, we do not intend to backfill the chief revenue officer position at this time.

Instead, our EMEA and APAC sales leaders will report to me directly. And Paul Colucci, a longtime ChannelAdvisor leader, who was been with us for 11 years, will step into the role of head of North American sales and report to me. Paul has successfully run our enterprise and brand sales teams in the past, and most recently spent the last few years building up our strategic partnerships and indirect sales channels with solid results. Paul will hit the ground running with an immediate focus on improving our U.S.

results and will also retain responsibility for our strategic partnership efforts. I'm excited to see Paul's responsibilities expand and to work more closely with him and our other regional leaders who performed so well for us. Our anticipated improvements in profitability and cash flow are an important element of our strategic framework as our core business matures. In particular, by increasing our capacity to fund potential acquisitions or -- and to accelerate our work with brands.

We believe that our healthy balance sheet with no debt and strong cash position and our focus on cash flow generation provide us the flexibility to invest appropriately in growth opportunities, including acquisitions. For instance, we feel great about our value proposition for brands, but we also believe there are many other areas where brands could use help to align with our strategy of building out a full-stack solution for them. And we think there are opportunities to jump-start those efforts by acquiring those capabilities versus solely building them organically. We are particularly interested in companies that offer tech-enabled commerce for brands who could benefit from our global sales reach.

That said, valuations appear generally elevated to us. And while we're eager to execute on our acquisition strategy, we're also financially disciplined buyers, so it's difficult to predict when the right opportunities will arise. And of course, our product teams continue to make great strides on our platform. In April, we rolled out a simplified and more modern user experience and are thrilled with the results.

About 95% of our users have now switched over, and so that migration is nearly complete and the feedback has been exceptionally positive. We think this newer user experience will help improve the speed and quality of customer onboarding and lead to improved retention rates, especially for our newer customers. We also launched a pilot for stand-alone Amazon repricing app that we're calling Elevate, our first truly zero-touch self sign up and self launch app. We anticipate that apps like Elevate can expand the addressable market by cost effectively bringing some of our capabilities to new customers through partnerships and serving as a source of potential future customers for our full platform.

Over the last year, we've made huge improvements to our algorithmic repricing capabilities and many customers who previously used other vendors for this capability have migrated over to ChannelAdvisor, simplifying their operations and saving them money in the process. Now these capabilities are available on the stand-alone basis, and we're excited to see how it evolves. In conclusion, our core business remain solid. And while we have work to do to improve our revenue and customer acquisition performance in the U.S., we continue to see strong progress with brands and our international regions, and we believe our improved profitability positions us well to invest in key growth initiatives and acquisitions going forward.

Finally, it is my great pleasure to announce the promotion of Beth Segovia to chief operating officer. Beth joined us two years ago as VP of Global Services and has demonstrated that rare combination of strategic thinking, strong leadership and an ability to roll up her sleeves and get into the details of our business on a customer-by-customer basis. Under her leadership, we've experienced improvements in churn, our post-sales customer engagement and our ability to expand with customers. In her new role, Beth responsibilities have expanded and include general operations, human resources and product and engineering.

Put simply, Beth gets things done, and I'm thrilled to see her take on new challenges. In particular, this will allow me to focus more my attention on sales, strategic partnerships, and potential acquisitions as we continue to seek improved revenue growth and profitability in the years to come. Beth has joined us on the call today, and so I'm going to ask her to spend a minute introducing herself. Beth?

Beth Segovia -- Chief Operating Officer

Thanks, David, and good morning, everyone. I am very excited to be taking on this new role and appreciate the opportunity to share a little about my background and vision. After spending over two decades in customer-facing roles, expanding supply chain, marketing, sales operations, customer operations, and services at Lenovo and IBM, I joined ChannelAdvisor to lead the global services team. I have been in this role now for nearly two years, overseeing implementation, technical support, account management, and manage services delivery.

I am proud of our accomplishments during this time. We have improved customer engagement, ensuring every client has an account management contact that focuses on their full relationship with ChannelAdvisor and in the vertical in which our client competes. And we've established an effective leadership structure in global standards across roles, client deliverables, and operational management. These efforts have produced improvements in major metrics associated with client management, including reducing churn and client contraction and increasing client expansions, all while maintaining high-customer satisfaction as measured by transactional survey.

The pace of innovation continues to accelerate in the world of e-commerce. Everyday something changes that eliminates or creates new opportunity for our customers to gain advantages over other sellers. We, at ChannelAdvisor, provide the technology and strategic insights that enable our customers to be successful. And finding that next effective strategy that leads to their success is why I get excited to come to work every single day.

In my role as COO, I see an opportunity to lead our organization forward by continuing to drive leadership in the market through innovation in our platform capability, integrated operations to ensure we execute in the most effective and efficient way and, of course, to continue to daily engaging with customers to ensure their success. I am looking forward to working with David and the executive management team in this new role to further develop our business and deliver positive results.

David Spitz -- Chief Executive Officer

Thanks, Beth, and congratulations on your new role. And with that, I'd like to hand the call over to Rich for his prepared remarks. You will recall that Rich stepped into the CFO role here in May, and I can say that Rich has been doing a fantastic job. So, Rich, over to you.

Rich Cornetta -- Chief Financial Officer

Thanks, David. I really appreciate on that. And, Beth, congrats on the well-deserved promotion.

Beth Segovia -- Chief Operating Officer

Thank you.

Rich Cornetta -- Chief Financial Officer

Good morning, everyone, and thanks for joining the call today. I'd like to start off by reviewing some of the highlights of our second-quarter performance, and then transition to a more detailed discussion of the business review conducted during the quarter, capital allocation plans for the future, and finally how all of this impacts our Q3 and full-year guidance. So let's discuss some of the details with the second quarter. And please bear in mind, consistent with our historical practices, my comments regarding expenses will be on a non-GAAP basis and all comparisons are on a year-over-year basis, unless otherwise specified.

As David mentioned, we're pleased with our second-quarter results with revenue finishing at the high end of the guidance range, significant adjusted EBITDA margin expansion that easily exceeded the high end of our guidance range and strong free cash flow. Total revenue was $31.9 million, down 2% or down 1% on a constant currency basis. Breaking down by revenue type, fixed subscription fee revenue was 24 -- $25.7 million or 81% of total revenue, and variable revenue was $6.2 million, representing 19% of total revenue. Fixed revenue was up 4% for our quarter compared to year ago period and continue to increase as a percentage of total revenue.

This positive mix shifts toward higher recurring revenue was driven by our Marketplaces and digital marketing offerings. Variable revenue was down 21%, which was primarily driven by unusually high partner revenue under other revenue segment in the second-quarter 2018, making for a difficult comparison. Also contributing to the decline in variable revenue was weakness in eBay GMV. However, we do expect the year-over-year comparison for eBay GMV to ease in the second half of 2019.

Looking at revenue by product, our marketplaces platform revenue was $23.6 million for the second quarter, essentially flat compared to the year-ago period and was 74% of total revenue. Importantly, fixed revenue for Marketplaces was up in the quarter. Digital marketing posted another solid quarter with revenue of $4.7 million, up 3% from the prior-year period and represented about 15% of total revenue. EMEA was a primary driver for growth in the quarter as was Amazon advertising in the U.S.

There is a growing trend of convergence of our digital marketing and Marketplaces offerings, lending to increased upsell opportunities that we expect to continue. From a geographic perspective, as David mentioned, revenue from our outside the U.S. increased 6% and continue to increase as a percentage of total revenue from a year ago period. The strength in international revenue was driven by EMEA and Australia, which were up 9% and 6%, respectively.

But -- and despite declines in China, which was down 20% from a year ago period, EMEA and Australia have been great success stories for us with their growth driven by strong leadership and great sales execution. Further, EMEA benefits from a relatively higher concentration of brands customers, which continued to have better unit economics compared to retailers. Now let's talk about some customer metrics. It bears repeating that a meaningful driver of the positive net bookings for the quarter was expansions of existing customer contracts, which do not, however, add to our customer account.

As David mentioned earlier, we had several new big-name customers who started out with relatively small contracts late last year, but quickly saw the value and strength of our platform and proactively reached out to us to expand the products or level of service we provide. We ended the second quarter with 2,715 customers, down 2% from the end of the first quarter. The decline was driven by our smaller customers as well as retailers. And as for average revenue per customer, we continue to improve, reaching $46,757 for the second quarter on a trailing 12-month basis, an increase of 4% from year ago period.

This increase reflects the continued shift to larger customers, particularly those with annual contract values over $100,000 and an increasing percentage of customers at out brands. For perspective, in the second quarter, brands on average had a 27% higher average revenue per customer than retailers. As for the rest of the P&L, adjusted EBITDA improved substantially to $3 million for the quarter, up $2 million and representing adjusted EBITDA margin expansion of 600 basis points from the prior-year period. And this is before recognizing any of the expected benefits from the reorganization completed in July.

The strong gains in adjusted EBITDA were driven by improved efficiencies and lower operating expenses. Specifically, we benefited from the lower compensation expense and approximately $1 million of lower costs associated with our annual e-commerce conference. These declines were partially offset by higher G&A expenses, primarily due to executive severance of approximately $500,000 recognized in the second quarter of this year. Now turning to the balance sheet, we finished the quarter with cash and cash equivalents of $49 million, an increase of $600,000 during the quarter and $1.8 million in the first half of the year.

Free cash flow of $2.3 million was strong for the quarter, and we expect to be cash positive for 2019 despite payments in conjunction with the reorganization of our operations early in the third quarter. These results highlight significant improvement from our net use of cash of $6.2 million in the full-year 2018. So that wraps up the review of our second-quarterperformance. I'd like to shift gears and focus on our recent business review of operations.

Following my appointment to CFO in May, we began a detailed review of our business, focused on understanding the sales challenges we faced at the start of the year and how our expense profile stacked up against our revenue guidance issued on May 9. As David mentioned earlier, we enjoyed a little bit of sales rebound in the second quarter, with the best quarterly net bookings results we have seen since the fourth quarter of 2017, driven by continued outperformance in EMEA and Australia, with also some improvement in the U.S. That said, although our bookings growth in the U.S. remains challenged, we intend to allocate our resources to sharpen our focus on improving results in the U.S., while investing appropriately to support our momentum in EMEA and Australia.

With regard to our analysis of expenses, we went through extensive companywide process to identify areas of our business that were not providing appropriate returns to support operations. This included a full assessment of every department throughout the organization and every geography with a focus on capital allocation, our assessment resulted in some difficult decisions, specifically for our U.S. and China operations. As a result of the actions we took based on this assessment, we expect to achieve gross annual operating expense savings of approximately $8 million.

As David mentioned earlier, we intend to reinvest some of these savings to fund areas with strong growth potential. And as a result, we expect annual operating expense savings to net over $5 million. So let me take you through some of the details. Regarding China, as noted earlier, despite some net bookings improvement in the first half of 2019, customer churn continue to be a challenge there and remain expensive to support our operations.

We ultimately made the decision to close our office in China. And while we'll continue to support our customers in China from our Australia office, we recognized that these customers and their revenues now would have increased risk of churn as a result of this decision. So while we expect the close of the China office to weigh on our 2019 revenue performance, we expect the decision to provide net annual operating expense savings of over $2 million. In the U.S., we identified opportunities to improve expenses primarily within the G&A category.

But also within our sales and R&D organizations by consolidating responsibilities, moving resources to other areas of our business or lower cost markets in which we operate to better support day-to-day operations. In addition, we took a closer look at our current vendor relationships and spend. Our plan includes the reallocation of some capital to other areas of our business that are producing strong results or need some capital injection to reinforce early signs of improvement. In such investments, including increasing our direct sales capacity in the U.S.

and Australia and services and support personnel in EMEA, where a meaningful percentage of our customer contracts are managed relationships. So on a net basis, we expect these efforts to provide annual savings of over $3 million. I want to stress that we are confident that the actions we took will drive meaningful improvement in adjusted EBITDA margins over the remainder of 2019 and into 2020. Now we'll talk about guidance.

Our guidance for Q3 and the remainder of 2019 reflects the closure of the office in China, which we anticipate will result in an acceleration in revenue declines from this market. Our guidance also reflects the overall operating expense reductions from the reorganization efforts in the U.S. and China, and the potential foreign currency impact on the British pound against the U.S. dollar, which primarily impacts our EMEA operations.

As a result of these factors, we are issuing third-quarter 2019 guidance of $31.5 million to $32 million in revenue and $4 million to $4.5 million and adjusted EBITDA. Now we do expect to incur approximately $1 million in expenses in the third quarter related to the reorganization actions. But given the nature of these onetime expenses, they will be excluded from adjusted EBITDA. For the full-year 2019, we are adjusting our guide compared to what we previously issued on May 9.

We are guiding to a range of $129 million to $131 million in revenue, compared to a previous range of $131 million to $134 million. However, we are raising our adjusted EBITDA guidance to a range of $17 million to $18.5 million, compared to our previous range of $15 million to $17 million. As a midpoint, this represents an improvement and adjusted EBITDA margin of 600 basis points compared to 2018, and positions us with a stronger, more efficient model to leverage growth in the future. In closing, we look to a future with a strong and driven management team, a leaner and more efficient operating structure, and a dedicated employee base, of whom I could not be prouder and more appreciative of, that face each day with a passion and commitment to provide leading-edge technology and service to our customers.

With a unified vision, we are working with a sense of urgency to execute our strategic framework with the goal to deliver sustained recurring revenue growth and margin expansion. With that, operator, we'd like to now open the call for questions.


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Questions & Answers:


Operator

[Operator instructions] And our first question is from Ryan MacDonald from Needham. Your line is now open.

Ryan MacDonald -- Needham and Company -- Analyst

Good morning, David and Rich. Thanks for taking my questions. I guess, I just wanted to start out regarding a bit on the reorganization here. As we go back a quarter and talk about sort of the sales reorganization that you had implemented sort of midway during the quarter, it sounds like from your commentary that bookings particularly in the U.S.

remain challenged still. Just wondering sort of what you're seeing there and maybe what improvements you still need to see, I guess, within the U.S. market through that sales reorg?

David Spitz -- Chief Executive Officer

Ryan, this is David. Thanks for the question. Well, so we actually saw a pretty good improvement from Q1 to Q2 in the U.S. I think my comments are kind of a little bit broader than that.

That if I look over the trends over the last number of quarters, we've seen strong performance and customer expansions, but I'd like to see stronger performance in net new customer acquisition in the U.S. That's an area where I think we can drive some improved performance. So this is less about Q1 or Q2 as it relates to U.S. sales.

It's just about some broader trends that I'd like to see improve. And I'll also --

Ryan MacDonald -- Needham and Company -- Analyst

Got it. And then I guess --

David Spitz -- Chief Executive Officer

Sorry, I'll add that the reorganization itself did not have an impact on sales capacity or anything like that. In fact, I -- it's my view that we have an opportunity to actually increase sales capacity in the U.S., and that's something we're going to be working on.

Ryan MacDonald -- Needham and Company -- Analyst

Got it. OK. And then, I guess, as you look at sort of driving new bookings moving forward, obviously brands are a large focus. And maybe I heard a little bit less of a focus on some of the indirect channels.

So if you could update us on your progress on those indirect channels as well as sort of the progress on adding a strategic reseller this year as well, I love to hear that?

David Spitz -- Chief Executive Officer

Yes. Thanks, Ryan. So yes, we continue to make good progress on that front. We've announced a number of strategic partnerships this year that we think can continue to contribute good revenue streams for us.

Not in a position yet at this point to announce strategic reseller, but that does continue to be an important focus for us.

Ryan MacDonald -- Needham and Company -- Analyst

Got it. Thank you very much.

David Spitz -- Chief Executive Officer

Thanks, Ryan.

Operator

Thank you. And our next question is from Colin Sebastian from Baird. Your line is now open.

Colin Sebastian -- Robert W. Baird -- Analyst

Thanks and good morning. Maybe first just a bit of a higher-level question, but given how quickly the end market is changing, I'm wondering what you think are the two or three biggest areas of growth opportunity in terms of product? And then how you balance the focus on operating efficiency and profitability with likely investments required to capture those product opportunities? And then secondly, David, I think you called out Google Shopping as an area of strength. I guess, I'm wondering if that represents incremental revenue opportunity for you guys, if you're seeing conversion to that, and if that's a shift of client sales from other channels and Marketplaces?

David Spitz -- Chief Executive Officer

Thanks, Colin. I'll start with the second part and go back to the first. So yes, Google Shopping has been a fantastic program for us over the last year. We've onboarded hundreds and hundreds of clients.

There are a significant number of clients that are also -- signed up but are still working through the process of going live. And so as you could imagine, difficult to predict exactly what the full benefit will be as we go into Q4. But I'm pretty bullish on the program overall and just based on the success that we've seen for it. So yes, I do expect it to contribute incremental revenue as we go forward.

Going back to your prior question in terms of products, number one, I'm pretty excited about some of the stand-alone apps that we've been developing. We've talked about this now I think for probably a couple of quarters and the opportunities specifically to work with strategic partners, who are looking for an opportunity to bring a more self-service, self-launch app to market. So as I mentioned in the call, we're in beta right now. We're in pilot with an app what we're calling Elevate.

That's our Amazon Repricer that any Amazon seller can sign up for. It's got a relatively low price point in the hundreds of dollars per month. And so that, I think, has the opportunity to expand our addressable market without incurring cost of sales or significant cost of support. And so as apps like that start to go out through various partners, we expect not only some potential incremental revenue streams, but also a good source of potential customers for our bigger platform.

Obviously, some of the customers on those apps will probably be too small for our full platform, but we do expect that a number of folks who sign up will actually be good candidates either immediately or at some point down the road for our full platform. So I think those apps represent one area to expand our addressable market and also leverage partnerships, which has been part of our key strategy over the last year. And then ultimately, we obviously continue to invest in our core platform, but I do think that there are acquisition opportunities out there. There are -- it's a very fragmented space in particular when it comes to brands in tech-enabled commerce for brands.

There are hundreds and hundreds of various point solutions out there that are specific to a very particular need or a very particular geography. And we think there's an opportunity to pull more of those capabilities into our platform. Obviously, some of that will focus on developing organically, but we also think there are opportunities to acquire those capabilities.

Colin Sebastian -- Robert W. Baird -- Analyst

OK. And then just lastly, the new platform user experience in terms of customer retention, I know it's still early, but are you seeing any material change in renewal rates or other metrics around retention as a result of adopting that new user experience?

David Spitz -- Chief Executive Officer

Yes. It's a little hard to say at this early juncture just because most of the retention metrics that we look at are, for example, first year or rolling 12-month kind of thing. So since we rolled this out in April, we don't yet have that kind of data to share. So at this point, what we have is anecdotal feedback, which has been really positive.

And I think that when you really look at what our focus was on this new user experience, it was not only modernizing the app, but the primary focus was making onboarding easier, like helping customers -- new customers understand, all right, now that I have signed up to our platform, where do I start? Where do I go? What's my next step? And so I have a hard time imagining that all the work that we did there is not going to have at least on an incremental benefit to customers getting started on the platform. One of the -- I will add that one of the -- I'm not going to share the number per se, but our first year of renewal rates in Europe, and Beth will correct me if I'm wrong, I think this is a Q1 or Q2, maybe end of Q2 stat were phenomenal in terms of customers' first-year renewals. And I think that's an indicator that it's not just about new user experience obviously, but I think it's also just about some of the service model that we've deployed in Europe that just really demonstrates that we can have all those kinds of renewal rates that are enterprise grade.

Colin Sebastian -- Robert W. Baird -- Analyst

OK. Thank you.

David Spitz -- Chief Executive Officer

Thanks, Colin.

Operator

Thank you. And our next question is from Alexia Tsimikas from D.A. Davidson. Your line is now open.

Alexia Tsimikas -- D. A. Davidson -- Analyst

Thanks for taking my question. So eBay once again suggested that the implementation of online sales practice following last year's ruling by the Supreme Court negatively impacted its U.S. GMS growth by 100 basis points in the June quarter. Other e-commerce companies, such as Etsy have also indicated that there will be negatively impacted. So how, if at all, is it affecting your performance?

David Spitz -- Chief Executive Officer

Thanks, Alexia. It's hard to say. We don't necessarily have visibility into traffic and bounce rates that our Marketplaces would see. So at the end of the day, we get the transaction, if it happens, and if it didn't happen because somebody had second thoughts around tax, we wouldn't have necessarily have visibility to that.

I will say though we saw stable, as I made in my -- as I commented in my prepared remarks, we did see stable GMV performance. Q1 to Q2, we saw some incremental gains on Amazon. We saw strength on Walmart. We did see some sort of consistent weakness with eBay, although we do think that that comp will ease a bit as we go into the back half of the year as we look over the last year performance on eBay.

So my philosophy on sales tax impact is that while it may have some short-term impact on various channels, I personally believe the benefits and the conveniences presented by e-commerce, especially as the order speeds continue to increase, really outweigh the negative impact of sales tax. And so I know that there's going be at the margin probably some consideration when people are making these purchase decisions around whether sales taxes included or not, but in my view the value proposition of e-commerce overall to our consumer outlays sales tax considerations. And that supported by data we've looked at in the past. Like for example, some number of years ago, I think it was 2016 or 2015 when California rolled out an online sales tax.

We saw -- we actually saw a pull forward of purchases on certain channels and advance of the sales tax effective date, and so we saw a bit of depression after it, but then things kind of went back to normal. So maybe a shorter-term impact after margins, but I don't think if it is a long-term secular headwind.

Alexia Tsimikas -- D. A. Davidson -- Analyst

Great. Thanks for taking my question.

David Spitz -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question is from David Gearhart from First Analysis. Your line is now open.

David Gearhart -- First Analysis -- Analyst

Hi. Good morning. Thanks for taking the questions. My first question, in the last couple of quarters, you provided the brand growth in revenue over the prior 12 months.

I just wanted to get that metric, if possible?

David Spitz -- Chief Executive Officer

David, I don't think we have that at hand in front of us. It may or may not be in the Q. I can -- we can potentially have Rich follow-up with you, if it's in the Q. But we continue to see strong performance with brands as just overall proportion of our customer base and proportion of revenues.

So I don't know that it's a metric we're necessarily going to be in the habit of providing every single quarter, but it's an area of strength for our business, and I expect it to be -- continue to be a strategic area for us going forward.

David Gearhart -- First Analysis -- Analyst

OK. And then in regards to the guide with China, is there any ability at this point just given its impact on the year for us to give us -- for you to give us the percentage of revenue that China represents? And then guidance was down by $2.5 million at the midpoint. Is that all China, if you had to handicap, what it represents in terms of the guide reduction?

Rich Cornetta -- Chief Financial Officer

David, this is Rich. So it does represent a significant portion of the guide down in revenue. Historically, China has been in the low single-digits range of revenue performance. So -- but we also -- as I mentioned in my prepared remarks, the downturn -- or the downgrade in revenue was driven also by foreign currency specific to the value of the pound versus the U.S.

dollar.

David Spitz -- Chief Executive Officer

I think we would say that the China change represents a significant majority of the change in revenue.

David Gearhart -- First Analysis -- Analyst

Got it. And then in regards to the product Elevate, just curious your thoughts on it actually drawing smaller customers to the platform, just given your shift from small to enterprise that with self-service tools, it could actually start bring in smaller companies back into the fold in your customer base. Any thoughts on that and how it would affect your profile?

David Spitz -- Chief Executive Officer

Yes. It's a great question. The reason we strategically moved away from smaller customers over the last several years is because they do exhibit higher churn rates, which is probably not a surprise, but that was not really compatible with the direct sales model, right? So a direct sales model implies that there are certain economics that you have to exhibit for a direct sales model to really be cost effective. And so we moved away from small customers because that was really our primary path to market.

What's different with Elevate and some of the other apps that we're working on is that these are zero-touch, self sign up, self-launch apps that do not go through our direct sales force. So the idea is that for example, we expect in the third quarter to launch Elevate on the Amazon App Store, working on other self-service apps that would be deployed through partners. And so that our expectation is that there will be virtually 0 cost of marketing and cost of sales associated with these apps. So even if there is higher churn rate, our unit economics would still work out.

And not only provide potentially a source of incremental revenue, but I think equally is important to us starts to highlight potential customers like I said for our broader platform.

David Gearhart -- First Analysis -- Analyst

Got it. Thank you so much for the color.

David Spitz -- Chief Executive Officer -- Analyst

Thanks, David.

Operator

Thank you. And our next question is from Zach Cummins from B. Riley FBR. Your line is now open.

Zach Cummins -- B. RIley FBR, Inc.-- Analyst

Hi. Good morning, David and Rich. I guess, just starting off, I mean, over this past earnings season, it seems like a few software companies have pointed out some weakness in the European region with concerns to kind of the overall geopolitical concerns and some macroeconomic weakness. Although your European business has been doing well, have you seen any of that pressure or does it raise any concerns here in the second half of the year?

David Spitz -- Chief Executive Officer

It's a great question. I think our European team -- and this is concentrated in the U.K. and in Germany, have been just pretty head down focused on customer acquisition. And so I think it'd be silly to say that there isn't some uncertainty with how Brexit plays out.

Obviously, the British pound has experienced some significant weakness and the dollar continues to strengthen. And so there are some externalities like that that are a little bit hard to pick what the impact is. But I would say, as of the moment, we aren't really seeing an impact as it relates to concerns about Brexit or economic slowdown. So -- and really I'd just attribute that to our teams being heads down and focused and not spending a lot of time pontificating about externalities and really just doing a good old fashion blocking and tackling of working with prospects and customers and helping them expand.

I obviously have been in this business long enough time to say that, as much as a positive economic environment can be helpful, ironically, I think sometimes even a challenged economic environment can be helpful to e-commerce because it does tend to drive consumer behavior. If I look back at the financial crisis in '08, '09, obviously, we saw a slowdown in e-commerce, but I think it also drew in more consumers who were looking -- who were more price conscious and had to be more selective about how they purchase products. So I'm not going to say that e-commerce is immune from those kinds of trends in the industry, but I think it's a little bit less impacted than maybe other segments. So -- but the short answer is, right now, I haven't seen anything.

Obviously, we're going to have to, I think like the rest of the world, see what happens with all this Brexit stuff and hopefully, it is not too impactful.

Zach Cummins -- B. RIley FBR, Inc.-- Analyst

Understood. Thanks for that. And then in terms of customer account for the quarter, can you provide a little more color around what really drove the decline in customer account? And it appears that metric could be under a little bit pressure here in the near term, but over the longer term kind of, say, next 12 to 18 months, how are you thinking about this metric and its importance in terms of revitalizing organic growth from the business?

David Spitz -- Chief Executive Officer

Yes. It's a great question. I've said in the past that for long-term sustainable growth, we do have to grow our customer base. It's obviously a partial metric, right, because we actually had really good bookings in the quarter.

I mean, a lot of those were expansions, right? And so those are valuable bookings, their expansions with existing customers. But if I peel the onion a little bit, some of this was contributed -- some of the decline was contributed by China, for some of the reasons that we touched on. But I would say the proximate cause of the decline in customer count is insufficient new customer acquisition in the U.S. That is really the area that we need to focus on.

And I think it's great that we're expanding with customers. It's not that I don't want to do that. We obviously want to continue to do that. That's -- that tends to be high-value, long-term revenue but there's still in my view plenty of market opportunity in the U.S.

and it's something we really need to focus on improving. And so we're always evaluating our metrics and what makes sense. And I'm sure as we get into next year and we think about the types of disclosures we provide, that and all of our metrics will on the -- in the consideration set.

Zach Cummins -- B. RIley FBR, Inc.-- Analyst

Understood. And then final question, for Rich, with the expectation now that you're going to be having increasing profitability and actually generating cash in the business, I think you highlighted potential areas for uses of cash, but could you kind of highlight these actual or rank the priorities in terms of uses of cash? And is there any potential that you could consider returning cash to shareholders via either share repurchase or potentially a dividend, if you can't find other ways to deploy that cash?

Rich Cornetta -- Chief Financial Officer

Yes. So -- thanks for the question. So as far as reallocation or investment, I pointed to two specific areas. Specifically with sales capacity within the U.S.

and Australia, we've seen tremendous growth in Australia as well as in EMEA, with some sales capacity growth there. But with regards to the services and support organizations in EMEA, as I mentioned also in my prepared remarks, our -- a majority -- many of our customers there are managed service customers, right? So we need to continue to support them and Beth's team has done a tremendous job over there, maintaining our customer base. We've had little to no churn over the last couple of quarters there in the U.K. So we see a lot of positive momentum there.

As far as returning -- or investing -- or returning to our shareholders, it's not something that we're looking at right now, but always considered for future thoughts and ideas and potential move forward ideas -- plans.

David Spitz -- Chief Executive Officer

Zach, one thing I'd add is, I touched on this. I do think that there are some acquisition opportunities there. We do think that there are opportunities to continue to grow the business, obviously, both organically. I think we can drive improvements in our U.S.

performance. We take kind of a private equity review, I would say, from an acquisition perspective. We do have IRR thresholds that we would like to achieve. We are financially disciplined but we think at our current revenue levels, we're not necessarily at a revenue scale that would allow us to really optimize some profitability or potentially share buybacks, right? So we'd like to see continued revenue growth, whether it's organic or inorganic to get to a sufficient level of scale that we can continue to drive cash returns -- cash and cash returns to investors.

Zach Cummins -- B. RIley FBR, Inc.-- Analyst

Understood. Well, thanks for taking my questions, and best of luck in the second half of the year.

David Spitz -- Chief Executive Officer -- Analyst

Thanks, Zach.

Rich Cornetta -- Chief Financial Officer

Thank you.

Operator

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

Traci Mangini -- Director of Investor Relations

Thank you, everyone, for joining us today, and for your continued support. We look forward to speaking with you again soon.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Traci Mangini -- Director of Investor Relations

David Spitz -- Chief Executive Officer

Beth Segovia -- Chief Operating Officer

Rich Cornetta -- Chief Financial Officer

Ryan MacDonald -- Needham and Company -- Analyst

Colin Sebastian -- Robert W. Baird -- Analyst

Alexia Tsimikas -- D. A. Davidson -- Analyst

David Gearhart -- First Analysis -- Analyst

Zach Cummins -- B. RIley FBR, Inc.-- Analyst

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