This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our proposed acquisition by CommerceHub. These forward-looking statements are made as of the date of this release and are based on current expectations, estimates, forecasts and projections, as well as the current beliefs and assumptions of management. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond ChannelAdvisor’s control. ChannelAdvisor’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, our ability to consummate the proposed transaction with CommerceHub in a timely manner or at all and potential delays in consummating the proposed transaction; the satisfaction or waiver of closing conditions to the consummation of the proposed transaction with CommerceHub, including with respect to the approval of our stockholders; and the other risks detailed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, as well as other documents that may be filed by the company from time to time with the Securities and Exchange Commission. These documents are available on the ‘SEC Filings’ section of the Investor Relations page of our website at http://ir.channeladvisor.com. In particular, the following factors, among others, could cause results to differ materially from those expressed or implied by such forward-looking statements: the impact of the COVID-19 pandemic on global economic conditions and on our revenues and financial performance; our reliance for a significant portion of our revenue on sales by our customers on the Amazon and eBay marketplaces and through advertisements on Google; our ability to respond to rapid changes in channel technologies or requirements; our ability to compete successfully against current and future competitors, which could include the channels themselves; our reliance in part on a pricing model under which a portion of the subscription fees we receive from customers is variable, based upon the amount of transaction volume that those customers process through our platform; our reliance on non-redundant data centers and cloud computing providers to deliver our SaaS solutions; the potential that the e-commerce market does not grow, or grows more slowly than we expect, particularly on the channels that our solutions support; challenges and risks associated with our international operations; our ability to align our expenses with revenue; and risks related to security or privacy breaches. The forward-looking statements included in this press release represent ChannelAdvisor’s views as of the date of this press release. ChannelAdvisor undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, these forward-looking statements should not be relied upon as representing ChannelAdvisor’s views as of any date subsequent to the date of this press release. ChannelAdvisor Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data) September 30, 2022 December 31, 2021 (unaudited) Assets Current assets: Cash and cash equivalents$88,115 $100,567 Accounts receivable, net of allowance of $241 and $279 as of September 30, 2022 and December 31, 2021, respectively 25,675 28,886 Prepaid expenses and other current assets 14,823 15,497 Total current assets 128,613 144,950 Operating lease right of use assets 5,172 2,856 Property and equipment, net of accumulated depreciation of $24,096 and $23,096 as of September 30, 2022 and December 31, 2021, respectively 9,212 7,682 Goodwill 28,209 30,042 Intangible assets, net 2,292 3,079 Deferred contract costs, net of current portion 18,648 17,951 Long-term deferred tax assets, net 28,368 32,616 Other assets 618 796 Total assets$221,132 $239,972 Liabilities and stockholders' equity Current liabilities: Accounts payable$1,057 $1,457 Accrued expenses 14,631 12,644 Deferred revenue 28,727 29,942 Other current liabilities 1,633 4,831 Total current liabilities 46,048 48,874 Long-term operating leases, net of current portion 4,787 1,182 Other long-term liabilities 1,069 1,718 Total liabilities 51,904 51,774 Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021 — — Common stock, $0.001 par value, 100,000,000 shares authorized, 28,915,564 and 30,188,595 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively 29 30 Additional paid-in capital 282,716 300,875 Accumulated other comprehensive loss (6,609) (2,237)Accumulated deficit (106,908) (110,470)Total stockholders' equity 169,228 188,198 Total liabilities and stockholders' equity$221,132 $239,972 ChannelAdvisor Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022
2021Revenue$43,490 $41,575 $128,589 $122,284 Cost of revenue (1) (2) 10,273 10,100 31,062 28,041 Gross profit 33,217 31,475 97,527 94,243 Operating expenses (1) (2): Sales and marketing 16,143 15,482 48,245 45,273 Research and development 5,389 5,364 16,192 16,799 General and administrative 9,984 7,075 24,654 18,792 Total operating expenses 31,516 27,921 89,091 80,864 Income from operations 1,701 3,554 8,436 13,379 Other income (expense): Interest income (expense) 234 (30) 251 (96)Other income (expense) 5 (29) 5 (164)Total other income (expense) 239 (59) 256 (260)Income before income taxes 1,940 3,495 8,692 13,119 Income tax expense (benefit) 2,039 (34) 5,130 (427)Net (loss) income$(99) $3,529 $3,562 $13,546 Net (loss) income per share: Basic$— $0.12 $0.12 $0.46 Diluted$— $0.11 $0.12 $0.43 Weighted average common shares outstanding: Basic 28,815,362 29,931,173 29,674,219 29,665,439 Diluted 29,955,554 31,474,314 30,793,498 31,295,737 (1) Includes stock-based compensation as follows: Cost of revenue$252 $169 $748 $665 Sales and marketing 1,060 928 2,707 2,744 Research and development 591 567 1,628 1,869 General and administrative 1,476 1,451 4,902 4,461 $3,379 $3,115 $9,985 $9,739 (2) Includes depreciation and amortization as follows: Cost of revenue$1,186 $1,100 $3,500 $3,409 Sales and marketing 76 85 221 356 Research and development 30 32 93 139 General and administrative 205 368 647 1,160 $1,497 $1,585 $4,461 $5,064 ChannelAdvisor Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands) Nine Months Ended September 30, 2022 2021Cash flows from operating activities Net income$3,562 $13,546 Adjustments to reconcile net income to cash and cash equivalents provided by operating activities: Depreciation and amortization 4,461 5,064 Bad debt expense (recovery) 260 (99)Stock-based compensation expense 9,985 9,739 Deferred income taxes 3,726 (875)Other items, net (1,229) (1,982)Changes in assets and liabilities: Accounts receivable 1,510 (583)Prepaid expenses and other assets 842 79 Deferred contract costs (2,345) (4,884)Accounts payable and accrued expenses 1,152 86 Deferred revenue 47 6,388 Cash and cash equivalents provided by operating activities 21,971 26,479 Cash flows from investing activities Purchases of property and equipment (2,871) (1,125)Payment of software development costs (2,890) (2,577)Cash and cash equivalents used in investing activities (5,761) (3,702)Cash flows from financing activities Repayment of finance leases (8) (12)Proceeds from exercise of stock options 700 4,237 Repurchase and retirement of common stock (25,000) — Payment of statutory tax withholding related to net-share settlement of restricted stock units (3,392) (1,363)Cash and cash equivalents (used in) provided by financing activities (27,700) 2,862 Effect of currency exchange rate changes on cash and cash equivalents (962) (165)Net (decrease) increase in cash and cash equivalents (12,452) 25,474 Cash and cash equivalents, beginning of period 100,567 71,545 Cash and cash equivalents, end of period$88,115 $97,019 Reconciliation of GAAP Gross Profit and GAAP Gross Margin to
Non-GAAP Gross Profit and Non-GAAP Gross Margin(unaudited; dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021Revenue$43,490 $41,575 $128,589 $122,284 Gross profit (GAAP)$33,217 $31,475 $97,527 $94,243 Plus: Stock-based compensation expense included within cost of revenue 252 169 748 665 Gross profit (Non-GAAP)$33,469 $31,644 $98,275 $94,908 Gross margin (GAAP) 76% 76% 76% 77%Gross margin (Non-GAAP) 77% 76% 76% 78% Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses(unaudited; in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022
2021
2022
2021Operating expenses (GAAP)$31,516 $27,921 $89,091 $80,864 Less: Stock-based compensation expense included within operating expenses 3,127 2,946 9,237 9,074 Less: Transaction costs in connection with CommerceHub merger included within operating expenses 3,249 — 3,249 — Less: Lease abandonment and related costs included within operating expenses 179 — 467 — Less: Headquarters relocation costs included within operating expenses 76 — 76 — Plus: Contingent consideration fair value adjustment included within operating expenses — — — (1,313)Operating expenses (Non-GAAP)$24,885 $24,975 $76,062 $73,103 Reconciliation of GAAP Income from Operations and GAAP Operating Margin to
Non-GAAP Income from Operations and Non-GAAP Operating Margin(unaudited; dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021Revenue$43,490 $41,575 $128,589 $122,284 Income from operations (GAAP)$1,701 $3,554 $8,436 $13,379 Plus: Stock-based compensation expense 3,379 3,115 9,985 9,739 Plus: Transaction costs in connection with CommerceHub merger 3,249 — 3,249 — Plus: Lease abandonment and related costs 179 — 467 — Plus: Headquarters relocation costs 76 — 76 — Less: Contingent consideration fair value adjustment — — — (1,313)Income from operations (Non-GAAP)$8,584 $6,669 $22,213 $21,805 Operating margin (GAAP) 4% 9% 7% 11%Operating margin (Non-GAAP) 20% 16% 17% 18% Reconciliation of GAAP Net (Loss) Income to Non-GAAP Net Income(unaudited; in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021
2022
2021Net (loss) income (GAAP)$(99) $3,529 $3,562 $13,546 Plus: Stock-based compensation expense 3,379 3,115 9,985 9,739 Plus: Transaction costs in connection with CommerceHub merger 3,249 — 3,249 — Plus: Lease abandonment and related costs 179 — 467 — Plus: Headquarters relocation costs 76 — 76 — Less: Contingent consideration fair value adjustment — — — (1,313)Net income (Non-GAAP)$6,784 $6,644 $17,339 $21,972 Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA and Adjusted EBITDA Margin(unaudited; in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021Net (loss) income (GAAP)$(99) $3,529 $3,562 $13,546 Adjustments: Interest (income) expense (234) 30 (251) 96 Income tax expense (benefit) 2,039 (34) 5,130 (427)Depreciation and amortization expense 1,497 1,585 4,461 5,064 Total adjustments 3,302 1,581 9,340 4,733 EBITDA 3,203 5,110 12,902 18,279 Stock-based compensation expense 3,379 3,115 9,985 9,739 Transaction costs in connection with CommerceHub merger 3,249 — 3,249 — Lease abandonment and related costs 179 — 467 — Headquarters relocation costs 76 — 76 — Contingent consideration fair value adjustment — — — (1,313)Adjusted EBITDA (Non-GAAP)$10,086 $8,225 $26,679 $26,705 Revenue (GAAP)$43,490 $41,575 $128,589 $122,284 Adjusted EBITDA margin (Non-GAAP) 23% 20% 21% 22% Free Cash Flow Reconciliation(unaudited; in thousands except share and per share data) Nine Months Ended September 30, 2022 2021Cash and cash equivalents provided by operating activities (GAAP)$21,971 $26,479 Less: Purchases of property and equipment (2,871) (1,125)Less: Payment of capitalized software development costs (2,890) (2,577)Free cash flow (Non-GAAP)$16,210 $22,777 Diluted weighted average shares outstanding 30,793,498 31,295,737 Free cash flow per diluted share (Non-GAAP)$0.53 $0.73
