ChannelAdvisor (ECOM) Q1 2020 Earnings Call Transcript

ChannelAdvisor (ECOM)
Q1 2020 Earnings Call
May 07, 2020, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 ChannelAdvisor earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Mr. Raiford Garrabrant, director of investor relations.

Please go ahead.

Raiford Garrabrant -- Director of Investor Relations

Good morning. Welcome to ChannelAdvisor's conference call for the first-quarter 2020. My name is Raiford Garrabrant, director of investor relations. And with me on the call today are David Spitz, ChannelAdvisor's chief executive officer; Beth Segovia, ChannelAdvisor's chief operating officer; and Rich Cornetta, ChannelAdvisor's chief financial officer.

This morning, we issued a press release with details on our first-quarter 2020 performance, as well as our outlook for the second-quarter 2020. 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 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 a 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 and 10-Q, as well as our other filings, which are available on the SEC website at 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. Our press release that we issued today includes GAAP to non-GAAP reconciliations for gross profit, gross margin, operating expenses, operating income, operating margin, adjusted EBITDA, non-GAAP net income, and free cash flow. We also provide GAAP to non-GAAP reconciliation schedule in our supplemental financial presentation posted on the Investor Relations section of our website at ir.channeladvisor.com.

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 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

Good morning, everyone, and thank you, Raiford. We'd like to officially welcome you to the team. Let me first say that I hope everyone is doing OK during this pandemic, and our hearts go out to everyone who's been personally affected by COVID-19. In these unprecedented times, I'll keep my remarks about our first-quarter results brief, as everyone wants to hear what we've seen since quarter end, as well as our outlook.

Our first-quarter results were strong with revenues of $32 million, exceeding our guidance for the quarter, and adjusted EBITDA of $6.5 million, significantly exceeding our guidance for the quarter. Year-on-year revenue growth continued to improve compared to recent quarters, aided in part by an acceleration in GMV, driving strong variable revenue in the latter half of March, as pandemic-related shelter-at-home directives and retail store closures drove a significant share of consumer spending online. Ongoing cost controls and the scalability of our business model contributed to a significant year-on-year improvement in profitability, as well as cash flow. Our strong balance sheet and cash flow gave us comfort as the COVID-19 crisis unfolded as I wrote in my shareholder letter on March 23.

From an operational perspective, we activated our business continuity program in late February and implemented a temporary global work-from-home policy and froze travel early March in order to protect the health of our employees and support our community's efforts to slow the spread of coronavirus. Our transition to work-from-home went very smoothly, and we've experienced no operational issues related to working from home. We set up a special client assistance team to help customers facing financial or operational distress, and Beth will share more about that in a moment. We are prepared to operate virtually as long as necessary and as much as we were ahead of the curve in moving to a virtual model, I anticipate that we will be behind the curve in returning to our offices, and we'll do so in a phased approach as we prioritize the safety of our employees and communities.

COVID-19 affected our first quarter in two ways. On the positive side, as I mentioned, we saw a broad acceleration in gross merchandise value or GMV processed on our platform in the latter half of March, which drove strong variable revenue. Offsetting this, our sales to new customers were disrupted in the last two weeks of the quarter, as prospects were understandably distracted by the rapidly developing COVID-19 situation and its impact on their own operations. We estimate this impacted our bookings by approximately 20% in the first quarter.

We also have customers like traditional department store retailers who face financial distress as their physical retail operations have been shut down. And so we anticipate that we're likely to experience an uptick in churn as some of these customers struggle to recover. As we turn the page to April, however, things really got interesting. What was an acceleration of GMV in March became a record-shattering April as a huge amount of consumer spending shifted online during the pandemic.

In fact, we exceeded $1 billion in GMV on Marketplaces in the month of April alone and even eclipsed our December 2019 volumes, which is usually our peak selling season by a wide margin. On April 15, otherwise known as stimulus day in the U.S. due to the receipt of government stimulus, direct deposits, and checks, we drove more GMV on Amazon in the U.S. than we did on Prime Day last year.

All in, Marketplace GMV increased 56% year on year in April, compared to a year-on-year increase of 15% in the first quarter, illustrating the magnitude of the acceleration we've seen. Volumes in the first few days of May have remained at elevated levels as well. How long and to what extent this continues is really hard to say. On the one hand, as brick-and-mortar stores gradually reopen and shelter-at-home orders are lifted, it is reasonable to expect that some, maybe even most of this GMV will subside.

Although I think retail will be permanently altered by the pandemic, and that it will take time for people to feel comfortable in-store settings, especially if there are subsequent outbreaks of coronavirus. And we can't ignore the reality that 30 million people have lost their jobs in the last few weeks in the U.S. alone, many more globally. Recessionary pressures have already started impacting reported consumer spending levels.

All of that said, my best guess is that the pandemic will prove to be a catalyst that drives a step function increase in e-commerce as a share of consumer spending and that some level of this GMV increase we're seeing is likely to be the new normal. Turning to sales, we weren't sure what to expect at the start of this quarter, considering how tough the last two weeks of March were. And despite a strong starting pipeline, we began by forecasting close rates at roughly 50% of normal levels. I'm happy to report that we finished the month of April having booked almost twice what we initially forecasted and appear to be pacing close to normal close rates insofar as one month represents a trend.

After a tough finish to the first quarter, momentum returned in April to our sales floor virtually anyway. What we're seeing is that COVID has been a catalyst that is causing many companies to accelerate their digital initiatives often with a sense of urgency. This is particularly true for brands whose retail distribution channels have been effectively halted by the pandemic and to our fast-tracking e-commerce initiatives. So we have several competing forces that are making the remainder of 2020 hard for us to forecast.

One near-term tailwind is strong GMV and the variable revenue it should drive, but it's hard to know how that will play out in May, June, let alone the rest of 2020. Another tailwind is that our value proposition should only be stronger as the shift to digital accelerates, especially for brands. On the other hand, a deep global economic contraction may impact consumer demand and affect our ability to sell and may lead to increased churn as certain categories of our customers like department store retailers struggle to recover. All of those factors are difficult to predict and quantify, and so we feel it's prudent and appropriate to withdraw guidance for the remainder of the year.

That being said, we are more confident than ever in our mission to connect and optimize the world's commerce, the future of the e-commerce industry, and that our value proposition resonates more strongly than ever. We were able to help our customers adapt to sudden holiday-like volumes without skipping a beat. Our business model, like our platform, has proven to be highly resilient, and our balance sheet and profitability have given us the room to think and invest for the long-term despite this unprecedented environment, especially in product innovation. Having managed this business through several business cycles, including the Great Recession, I believe we're well-positioned to lean into the current situation.

And with that, I'll turn it over to Beth.

Beth Segovia -- Chief Operating Officer

Thank you, David, and good morning, everyone. I would like to start by adding my own hope that each of you are doing, as well as can be expected during this time and staying safe as the situation develops. As David mentioned, in response to COVID-19, we activated our business continuity program, a plan designed to help us manage through a variety of business-critical situations. As part of our plan, we have a dedicated team monitoring the situation, making decisions, managing communications, and ensuring that we are able to continue supporting our customers and business partners effectively.

Our platform is cloud-based and globally distributed and is neither located in or dependent on any of our physical office locations to operate. We have not experienced any disruption. In fact, we have had numerous clients share their compliments on our ability to continue to support their business strategies at this critical time. This demonstrated capability to operate effectively working from home enables us to protect employee safety and remain productive as we consider an eventual return to in-office operations.

We are incredibly proud to share how we are actively working with our clients to develop strategies to enable their success at this time. Quickly, we created a web page and active blogs with resources to help clients navigate the pandemic, sharing news, our reactions, and recommendations as the situation developed. We are providing guidance on topics ranging from how to manage through FBA dependence to keeping pace with marketplace policy changes. As some work to find ways to balance lower sales in brick-and-mortar stores, we are contributing with solutions that can enable stronger online growth.

We also initiated a program to assist customers facing financial and operational distress, and to date, have applied approximately $1 million in relief for certain customers experiencing demonstrated hardship in the form of deferred payment plans or reduced contractual tiers. While we believe our solutions are more relevant than ever given this current situation, smaller clients, as well as those substantially dependent on physical retail stores, are facing significant challenges. As a result, we are anticipating higher terminations and contractions during this period of disruption. Let me now turn to talk a bit about how gross merchandise value, or GMV, is trending, given current events.

Many of you have been following our blog where our chief marketing officer, Mike Shapaker, has been sharing updates on trends each week for the last six weeks. Starting in late March, we observed GMV growing as consumers under lockdown had turned to online to source critical items they could no longer easily access in-store. As David mentioned, overall GMV accelerated in late March and continued to remain elevated in April, driven initially by purchases of necessities like toilet paper, grocery, and athletic apparel. GMV has continued to grow across a wider range of products with spikes in activity related to dates of U.S.

government-issued stimulus checks. The growth appears to be across the board for our marketplace channel. We saw accelerated growth on Amazon in April over the prior three months. We also saw incredible growth on Walmart in March and more than 100% growth in April year on year.

And eBay, on which we had seen some GMV decline in 2019 and early 2020 compared to prior-year periods has also returned to double-digit GMV growth year over year in April. Our long tail of Marketplaces also enjoyed generally robust GMV growth year over year in April, including Zalando, Newegg, and others. We are particularly pleased to have effectively provided our clients with uninterrupted support while working from home during this record-breaking period of GMV growth. One long term client, PureFormulas, an IR Top 500 health and wellness retailer of a range of products from dietary supplements to organic foods, reported it has experienced a surge in demand.

The client shared that they use predictive analytics and relied on ChannelAdvisor's expert guidance to help forecast demand and our digital marketing services and marketplace capabilities to get its products in front of the right consumers at the right time. Their success story is available on our website at channeladvisor.com. In addition, while digital marketing ad spends declined abruptly in mid to late March, we saw a recovery in spending levels across all channels in April, including Amazon 1P and 3P as advertisers are adjusting to the current environment. This stabilization of ad spend is another positive indicator for us and our clients.

Now that we've talked through the current environment and how it's affecting our business, let me turn to sharing a few technology highlights from the past quarter. As David mentioned, our strong financial position has allowed us to think and act strategically in the face of this pandemic, and I am pleased to report that we've made significant strides in product innovation, in addition to enhancing the client experience to enable their success. Channel expansion is always a critical priority for us. We further expanded our sales tracking capability to support hundreds of additional retailers by adding seven affiliates to our Where to Buy solution.

We added 11 new marketplaces, enabling the global expansion, including Amazon Netherlands and Singapore, Interpark in Korea, Kogan in Australia and New Zealand, El Corte Ingles in Spain and VP in France. In addition, we added five new 1P dropship retailers, including Costco and Best Buy, and enabled 10 additional locales across EMEA, Asia, and the Americas supporting Facebook advertisers. In addition, we delivered numerous new features to improve usability and seller outcomes. I'll share a couple of examples.

We continue to build technology to manage Amazon advertising, releasing dayparting optimization, which automatically adjusts bidding for peak hours during the day, saving advertisers both time and budget. For all marketplace sellers, we've improved listing error resolution workflows by eliminating notifications of errors that do not impact sales, basically reducing noise and enabling the user to focus on resolving those errors that truly matter. Finally, I'd like to share an update on progress toward developing our good, better, best approach designed to expand our addressable market. We successfully achieved a major milestone at the end of March by releasing our Starter Edition product for beta customer acquisition.

Initial beta users are providing regular feedback to shape the final product, which is planned for general release in the second quarter to the client base of our go-to-market partner ShipStation. We are encouraged by early interest and feedback and are very pleased by the collaboration and results to date achieved with this strategic partner. To summarize, I'm proud of how we have engaged as a company to continue operations and support our clients given the challenges of the current environment. GMV trends indicate growth in online purchasing and reinforce the need for our solutions in the market.

Our product and engineering teams have continued to innovate actively to further arm our clients to compete. While there is uncertainty, I remain confident in our ability to deliver and provide relevant solutions to companies growing their e-commerce businesses, and I'm optimistic about the opportunity in front of us. With that, I'll pass it to Rich, who will now provide a more detailed update on our financial performance. Rich?

Rich Cornetta -- Chief Financial Officer

Great update, Beth. Thank you, and good morning, everyone. First, I'd like to recognize and thank our finance team for their tremendous efforts during these unprecedented circumstances. Fortunately, we are well prepared to execute on all quarter close-related deliverables, which is a true testament to our strong internal controls, policies, and procedures.

The global impacts of the COVID-19 pandemic are well documented. The U.S. government has reacted swiftly with an array of programs to assist businesses in need. Given our ample liquidity, positive cash flows and a business model substantially based on recurring subscription revenues, we are not dependent on, nor did we pursue any form of relief in the form of U.S.

government-backed loans, such as the Payroll Protection Program. However, we do intend to benefit from certain incentives such as penalty and interest-free deferral of certain tax payments in multiple jurisdictions. So let's discuss first-quarter performance. Please bear in mind, consistent with our historical practices, my comments regarding expenses will be on a non-GAAP basis.

Our financial results for the first-quarter 2020 were strong, with both revenue and adjusted EBITDA above the high end of our guidance ranges for the quarter. We are extremely pleased with our profitability, not only during the current quarter but also over the previous trailing 12 months. We also achieved another quarter of strong free cash flow, with a substantial improvement compared to the prior-year period. Given the current environment where cash is king, this is as important as ever, and we will continue to focus our attention on managing our cash position throughout the year.

Now let's take a closer look at these results. Total revenue was $32 million for the first-quarter 2020, up 1% year over year, up nearly 2% on a constant-currency basis and up 2% excluding our China operations. Looking at revenue by customer type, which we look at on a trailing 12-month basis. Brands revenue for the 12 months ended March 31, 2020, increased 16%, compared to the year-ago period, and represented 31% of our total revenue for the period, up from 26% for the prior-year period.

Please note, we clarified our internal definition of brands customers during the first quarter, and the year-over-year results presented have been adjusted for this change. We are pleased with this continued shift toward brands, which is part of our longer-term strategic goals. Because as we have mentioned in the past, brands generally have a higher growth rate compared to retail customers, as well as higher rates of expansions, overall higher average revenue per customer, and better retention. As this pandemic has illustrated, brands are also generally more resilient and better positioned when it comes to the shift to digital channels, which is why they have been a strategic focus for us over the last few years.

Retailer revenue for the 12 months ended March 31, 2020, represented 64% of our total revenue for the period, down from 67% for the prior-year period. First-quarter subscription revenue was $25.8 million, representing an increase of 1% compared to the year-ago period. First-quarter variable revenue was $6.2 million, representing an increase of 2% from the year-ago period. This was the first quarter since Q3 '18, where we've seen year-over-year variable revenue growth.

A meaningful portion of our first-quarter revenue beat was driven by our variable revenue performance, resulting from elevated GMV transaction volume, especially toward the end of March, as David described. From a geographic perspective, revenue from the U.S. increased 1% in the quarter, representing the first quarter of revenue growth in the U.S. since Q4 '18.

We attribute this growth primarily from variable revenue performance, as well as from brand and strategic partner revenue. But it does not yet reflect the investments we've made in the U.S. sales organization over the last two quarters. Many of the new sales reps that we've hired in the U.S.

are still progressing through training and ramp, and we anticipate their productivity to start contributing to our results in the second half of 2020. International revenue increased 6%, excluding China results. Adjusted EBITDA improved substantially to $6.5 million for the quarter, compared to $2.6 million in the prior-year period, representing a 1,200-basis-point increase in adjusted EBITDA margin to 20.3%. These results include improvements across all reported expense line items during the quarter.

Further, adjusted EBITDA for the trailing 12-month period ended March 31, 2020, totaled $24 million, highlighting our continued commitment and ability to manage expenses and drive profitable growth. Similarly, GAAP net income experienced significant improvement, coming in at $2 million for the quarter, compared to a net loss of $2.3 million in the prior-year period. The strong improvement in adjusted EBITDA and GAAP net income was a direct result of our revenue growth, ongoing cost discipline and our reorganization in July 2019, which was aimed at reallocating capital to make investments in sales, services, and support to enable a return to top-line growth in the U.S. and further strengthen our international operations.

Turning to the balance sheet, we finished the quarter with strong results. Cash and cash equivalents were $56.3 million, up $4.6 million during the quarter. Free cash flow was $4.7 million for the quarter, marking a substantial improvement of $4 million from the prior-year period. Given the current economic environment, we are carefully managing our cash position each week.

And I'm pleased to report that cash collections have remained strong during the first quarter and through April as well. Now let's discuss our short and long-term outlook. As David mentioned, we are withdrawing our annual revenue and adjusted EBITDA guidance due to the uncertain outlook caused by the COVID-19 pandemic. Despite the growth in GMV transaction volumes in March and April, driving improved variable revenue performance, we simply cannot predict how long or to what extent this level of GMV will continue and benefit our revenues, especially against an uncertain global economic backdrop, which may affect consumer spending globally.

In addition, as David mentioned, toward the end of the first quarter, we saw sales disruption, and we anticipate possible increases in customer contractions and churn as certain customers confront financial and operational challenges associated with the pandemic. For the second-quarter 2020, we have some visibility as to our expected financial performance, but it too is more limited than usual. April revenues are encouraging based on the strong GMV trends we've described. And May GMV trends have remained elevated thus far.

As such, it remains very difficult to forecast whether these elevated GMV trends will continue throughout May and June and hope in how it may translate to revenues for the second quarter. Based on our assumptions that GMV levels taper off as the quarter progresses but still remains somewhat higher than what we saw pre-pandemic, we are issuing a revenue guidance floor of $32.5 million and an adjusted EBITDA guidance floor of $6 million for the second-quarter 2020. It is important to note that if current GMV trends were to continue throughout the second quarter, we could see variable revenue results that compare to our seasonal Q4 performance. Despite more limited revenue visibility, we have proven in the past that we have the ability to manage expenses through strict cost discipline.

Simply from the effects of the pandemic alone, we have identified cost savings from canceled shows and events, elimination of travel, certain facilities-related expenses, and certain discretionary spending. This experience will also help drive decisions beyond 2020 as we have proven we can continue to operate successfully while working from home. These and other opportunities can help drive continued improvement in profitability over the long term. In closing, we remain confident in the value proposition our platform brings to the market, especially in light of increasing dependency on e-commerce.

I will now pass the call back to David for some final remarks.

David Spitz -- Chief Executive Officer

Thanks, Rich. I'm proud of our team for handling the last few months with incredible professionalism and such a strong focus on our customers. We know that we're fortunate to be in the right place at the right time during this pandemic as it relates to e-commerce. And though near-term visibility is limited, our mission is intact and more relevant than ever.

And with that, operator, we'd like to now open the call to questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Ryan MacDonald from Needham.

Ryan MacDonald -- Needham and Company -- Analyst

Good morning, David, Beth, and Rich. Thanks for taking my questions, and congrats on a nice quarter here. David, in particular, thanks for sharing the updates regarding the GMV trends through March and April. I thought the data point, particularly around stimulus day in comparison to Amazon, was particularly interesting.

As you're looking at the current environment and sort of supporting customers here via this deferred payments and reduced contract tiers, can you talk about what impact that's had thus far on perhaps reducing customer churn or contract cancellations in the interim?

David Spitz -- Chief Executive Officer

Yes. I think, number one, it's a program that we implemented because we knew some of our customers were facing some distress, especially early in the pandemic, whether it was retail store closures or what have you. And it was our view that the right thing to do was to work with them and try to make sure that we were being as supportive as possible. I think it's been well received.

I think it's probably a little bit too early to say necessarily what the impact is on churn. I think it's going to be customer by customer. Some customers just need a little bit more time if their operations were shut down, for example, due to the shutdown of their fulfillment facilities. And then some may have broader existential issues that reach far beyond ChannelAdvisor.

So I think it's a little bit early to say at this point. But I think we're past the peak of that. I think most people are operationalized again. And of course, we're seeing essentially a holiday in the middle of the spring, and it's spread to most of the categories that we track.

So at this point, I think the vast majority of it is behind us.

Ryan MacDonald -- Needham and Company -- Analyst

Got it. That's great. And then as a follow-up, it's great to see the bounce back in new bookings in April. Can you talk about what the general mix you're seeing of these new bookings are in terms of brands as a percent of those bookings? And are you seeing any surprising pockets of strength from a geographic perspective as you've looked into April and early May?

David Spitz -- Chief Executive Officer

Yes. I would say for April, the majority of bookings, particularly for new customers is with brands. In Europe in April, it was virtually all brands, which is interesting. So I think, as we've talked about before, brands are really having to evaluate the path to the consumer and what digital means for them.

Obviously, there are some that have been doing that for many years, but there are some that still are very early in that life cycle. And if you're one of those late life cycle type of brands and your traditional distribution channel is through retailers, this has really been a wake-up call. Right? And I think we've accelerated frankly, probably at least five years of digital transformation into the present just because when a major source of revenue goes close to zero, it wakes everybody up to, and it's a real call to action for brands.

Ryan MacDonald -- Needham and Company -- Analyst

Great. Thanks for the color.

David Spitz -- Chief Executive Officer

Thanks, Ryan.

Operator

Your next question comes from Matt Pfau from William Blair.

Matt Pfau -- William Blair and Company -- Analyst

Hey, guys. Thanks for taking my questions, and nice job on the quarter. I wanted to ask about the new customer signings. And I guess I'm a little surprised that you haven't seen a huge influx of new customers, at least checking ChannelAdvisor out as they try to build out their digital presence.

Maybe any idea as to why that has been? Or is it more of just the sort of pipeline or capacity thing on your side in terms of getting new customers onboard?

David Spitz -- Chief Executive Officer

Yes. Hey, Ryan. This is David. I think we have seen an uptick for sure.

You have to remember, our sales cycle is typically 45 days for mid-tier customers and as long as 100 to 110 days for brand. So I would say that that influx is still, for the most part, in the pipeline. But as I just remarked on the prior response, this has been a wake-up call, this whole pandemic, I think, for brands in particular. And even for certain types of retailers that need to beef up their e-commerce initiative.

So I would expect this to be a tailwind in terms of new customer acquisition over time. It's just early in our typical sales cycle.

Matt Pfau -- William Blair and Company -- Analyst

Got it. And there's also been categories that historically haven't maybe had great online penetration have seen huge upticks. Have you seen a mix shift in the types of retailers or brands in your pipeline correlating with some of that shifting in e-commerce penetration by category?

David Spitz -- Chief Executive Officer

Yes, I think so. I think when I call this -- when I say this is a wake-up call, it really applies to practically every category, right, even categories we historically maybe haven't done as much in. So there really hasn't been any particular e-commerce category that hasn't been affected in some way in terms of traditional retail. So I expect that we'll continue to see this broaden the applicability of our solutions to the market.

Matt Pfau -- William Blair and Company -- Analyst

Got it. And then just one last one for Rich. On the expenses in the quarter, as we think about modeling out the rest of the year, I mean, is there anything sort of onetime in the expenses that's a bit unique about the first quarter that may sort of preferred out throughout the rest of the year, or are these sort of good baselines to use going forward?

Rich Cornetta -- Chief Financial Officer

So we did have a couple of onetime things, primarily some expense reversals with primarily maybe some compensation reversals in Q1 that may have contributed to the strong EBITDA performance in Q1. We've also had some employee attrition savings during Q1 that we don't want to essentially depend on for the rest of the year. So I would say mostly some expense reversals that would be onetime events in Q1. We have identified some additional cost savings as a result of the pandemic.

I called out a few areas with regards to shows and events, travel, things like that that we are factoring into our forecast for the rest of the year.

Matt Pfau -- William Blair and Company -- Analyst

Thanks for taking my questions, guys.

David Spitz -- Chief Executive Officer

Thanks.

Operator

Your next question comes from Zach Cummins from B. Riley FBR.

Zach Cummins -- B. Riley FBR -- Analyst

Hi. Good morning, David, Rich, and Beth. I guess just thinking about the sales force right now, just given the uptick in demand that you're seeing from new brands that's coming to you, looking to explore initiatives to move online. How are you feeling about the overall sales capacity and the trajectory of the new reps that you brought on near the end of 2019?

David Spitz -- Chief Executive Officer

Zach, this is David. I feel really good about our sales capacity. In particular in the U.S., which was where we had the biggest gap last year. We've closed the gap and added some.

And so I think we are in a very good position from a capacity standpoint. Obviously, the folks that we hired toward the end of 2019 and into 2020, are still on the early part of their ramping curve. So I would expect them to start contributing meaningfully to bookings as we turn into the second half. But from an outright capacity standpoint, I think we're in really good shape.

Zach Cummins -- B. Riley FBR -- Analyst

Got it. That's helpful. And then you noted there is a potential risk of an uptick in churn, just given some of the overall impacts from the pandemic. Can you quantify or just give us any sort of idea of what portion of your customer base or even just generally, what portion of your GMV you feel like is at risk given some of the potential impacts from the pandemic?

David Spitz -- Chief Executive Officer

Yes. I don't have a percentage for you, Zach. I would characterize it as incremental risk as opposed to substantial or huge numbers. We just know that there are -- we have, for example, a couple of mall-based retailers.

And I think we all know the story of how those guys are doing overall. And I'll point that we have very, very low revenue concentration. I think our top 10 customers account for mid-single digits revenue for us. So there's no one customer that really drives a material amount of revenue for us.

But we do expect that some of these folks may have difficulty turning the corner, and that's why we're making the point. But I would characterize it as incremental as opposed to a step function increase.

Zach Cummins -- B. Riley FBR -- Analyst

Got it. And then final question for me is then on the advertising expense side of it, I know there's been some pressure there, here at least in the first half of the year that could potentially be getting worse in the second half. I mean, how are you seeing those trends, especially on Amazon and Google here during Q1 and then kind of here in the first part of Q2?

David Spitz -- Chief Executive Officer

Yes. It was really interesting. So in the middle of March, when this whole crisis really engulfed us, we really saw ad spend drop significantly from even the prior two weeks. And you could sort of tell that everybody was just freezing budgets and halting spending.

Because I think everybody was looking over the edge of the cliff and not sure where the bottom was. Right? So everybody went into cash hoarding mode. And I would say it rebounded pretty quickly, like we started to see recovery even in March as click costs and things like that became substantially more attractive. So some of the more enterprising customers went in and took advantage of that situation.

And then as we've been here in April, and this is up through yesterday, so a few days into May, I pulled the latest batch of data, and we've seen a stabilization of those trends across channels. So it feels like there was an initial kind of rush for exits in the middle of March, a quick rebound as we got to the end of the month. And we're at relatively normal levels in April going into May.

Zach Cummins -- B. Riley FBR -- Analyst

Got it. That's helpful. Well, thanks again for taking my questions and best of luck going forward.

David Spitz -- Chief Executive Officer

Thanks.

Operator

Your next question comes from Colin Sebastian from Baird.

Colin Sebastian -- Robert W. Baird and Company -- Analyst

Thanks, and good morning, everybody. I hope everyone there is safe and healthy. First off, David, with respect to the Marketplaces. Obviously, Amazon has some well-publicized issues with logistics and just shifting to essential products.

So I'm curious if this dynamic and the strength you've seen on Walmart and eBay and maybe others, is that a way that you can really demonstrate the value proposition of ChannelAdvisor as you enable merchants to shift between platforms since I assume that's something that's happening more frequently behind the scenes? And then secondly, fulfillment is certainly one of the key pain points that we're hearing from merchants in this current environment. Wondering if you're seeing any increase in demand for your fulfillment services, if you could talk about the strategic partnership with ShipStation, as well as the launch of Starter Edition.

David Spitz -- Chief Executive Officer

Yes. Colin, I appreciate that. Yes. I think it's been really interesting.

Right? We basically have had a surprise holiday season here in the spring. And Amazon, I think, is relatively neat compared to other channels in that they handle and manage so much of the fulfillment on behalf of not only themselves but third-party customers. So to be honest, the fact that they've been able to spin up and frankly, effectively manage through a surprise holiday with a little bit of disruption, but it is, to me, a testament to their operational and just their raw execution. So I think it's actually been pretty impressive what they've done.

But yes, absolutely. I think it does speak to our value proposition. Most of our customer shipments are actually seller fulfilled. They often tend to be larger customers who don't necessarily need to use FBA or don't need to use it exclusively.

And so we saw a little bit less of an impact on our customers. But absolutely, as Walmart, as Beth made or commented in her section, Walmart was just on fire and continues to perform really well. And eBay also is in the double digits. And so having a platform that allows customers to seamlessly sell across multiple channels and automatically list and delist as things go in and out of stock, especially for our customers who, again, are mostly fulfilling themselves, and therefore, they have flexibility has been, I think, really good.

And those are just three of the channels. Right? We obviously, we support something like 140 different Marketplaces, and so giving people the opportunity to reach consumers wherever they're looking, maybe Amazon was out of stock or maybe whatever channel was out of stock, really gave people some flexibility in looking for things. So I think this will end up being an advantage for Walmart because so many people have probably shopped on Walmart online for the first time and experienced things like pickup in-store. So I think this will be a step function for them.

As it relates to fulfillment, I think it's still a little bit early just given our sales cycle to say definitively that one category or one product is really witnessing a step function change in demand. But the fact that we do have order orchestration in our system and the ability to route orders to different fulfillment centers really came in key for, I know at least a couple of customers that I spoke to who maybe had different distribution centers in different states where different lockdown orders were in effect. Most states allowed e-commerce fulfillment centers to stay open, but there was some confusion around that. So being able to route orders dynamically, I think has been really positive.

And I do expect that that will continue to be a differentiator for us. And then your last question was around ShipStation and Starter. As Beth mentioned, we've entered our beta period with a set of initial customers on that. It's really pretty exciting to see it go and to get that feedback.

And we anticipate during Q2, launching that into the full market with ShipStation. So still early, while still getting, obviously, feedback from our beta customers. But the critical thing for us here is it allows us to expand our addressable market by reaching smaller customers that we've had to move away from over the last few years, but where there's a lot of commerce, but to do so in a very, very efficient go-to-market model without a direct sales force at a lower price point and not only serve that market but then also help those customers migrate up through to our larger platform over time.

Colin Sebastian -- Robert W. Baird and Company -- Analyst

Great. Thank you.

David Spitz -- Chief Executive Officer

Thanks, Colin.

Operator

Your next question comes from the line of Thomas Forte from D.A. Davidson.

Thomas Forte -- D.A. Davidson -- Analyst

Great. Thanks for taking my question. So first, an observation and then two questions. So the observation is the buy category data you've had on your platform has been amazing, very illustrative of the shift to e-commerce during the outbreak.

So thank you for that. Second, on online penetration for specific categories, such as home, which looks to be in, say, the 40% range versus the 20% range in apparel. What do you see as the near-term stickiness of that with stores reopening? And then second, what are the implications to the ChannelAdvisor on the acceleration of online penetration across these multiple categories? I think recently, you highlighted your brand success with ASICS.

David Spitz -- Chief Executive Officer

Tom, great question. I appreciate the -- we've been putting a lot of commentary out there. In fact, just last night, we released our sixth dump of data around category trends. So if you haven't had a chance to see it, it's worth reading because it captures stimulus day and some other trends.

But we've been doing a lot of that to try to be as helpful as we can to our customers and help them understand what's going on. But it's also been fascinating to watch the sort of waves of buying patterns that have been happening. To your point on penetration and how durable it is, that's the big question. And it's a little bit hard to say at this point.

As I mentioned, I think what we're seeing is going to turn out to be a step function increase in e-commerce sales. I don't necessarily expect it to stay at what are essentially holiday levels right now. I think that would be a surprise to me. But I think even as stores reopen, I think all you have to do is speak to a few different family members and ask them, are they ready to rush back to a store or not.

And I think some people probably are. And I think some people are probably not in a rush to go back into a traditional retail environment. And so I think this will sort of permanently alter the landscape. I think the other thing is that there are a lot of people who still primarily shop offline who have been, in essence, forced to start shopping online more and more, and maybe have come to realize, wow, this is really convenient and could be that they keep a higher portion of their spend online as a result.

This applies to other services like online grocery shopping, pickup, buy online, pickup in-store or home delivery of things, things like grocery. So I don't know exactly where it all ends up when the dust settles. I expect it won't be at the current holiday levels of spending. But I do think that it will be higher than it was going into this.

And where in there it is, is kind of hard to say. As it relates to the implications for ChannelAdvisor, I think it's good. I think it's only good in the sense that the shift to digital, I think, is dramatically accelerating for a number of companies. They're looking for robust enterprise-grade solutions.

I mean, the fact that we've been able to scale without a blip for all of our customers for a surprise holiday season in the spring, it shouldn't be lost on people. That's -- our technology is able to scale very, very rapidly to very large accounts. And when you want to work with a partner who's trusted, who's global, who's got that kind of scalability and the breadth and depth of what we offer, I think as more and more companies pull forward their digital transformation plans, we're exactly the kind of partner that they should look for. So shifting more spend online, I think, over time, can only benefit ChannelAdvisor.

Thomas Forte -- D.A. Davidson -- Analyst

Great. Thank you. Stay well.

David Spitz -- Chief Executive Officer

Thank you. You too.

Operator

And I'm showing no further questions at this time. I will now turn it back to management for closing remarks.

Raiford Garrabrant -- Director of Investor Relations

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

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Raiford Garrabrant -- 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

Matt Pfau -- William Blair and Company -- Analyst

Zach Cummins -- B. Riley FBR -- Analyst

Colin Sebastian -- Robert W. Baird and Company -- Analyst

Thomas Forte -- D.A. Davidson -- Analyst

More ECOM analysis

All earnings call transcripts