John Baule - CFO
Scot Wingo - CEO and Chairman
David Spitz - President and COO
Heath Perry - Goldman Sachs
Brad Reback - Stifel
Michael Huang - Needham & Company
Chad Bartley - Pacific Crest
Karl Keirstead - BMO Capital Markets
Terry Tillman - Raymond James
ChannelAdvisor Corporation (ECOM) Q2 2013 Results - Earnings Call Transcript August 7, 2013 4:30 PM ET
Good day ladies and gentlemen and welcome to Q2 2013 Channel Advisor Earnings Conference Call. My name is Talou and I will be your operator today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. John Baule. Please proceed, sir.
Thank you. Good afternoon and welcome to ChannelAdvisor’s conference call for the second quarter of 2013. I am John Baule, Chief Financial Officer of ChannelAdvisor. With me on the call today are Scot Wingo, CEO and Chairman and David Spitz, President and COO. After the market closed, we issued a press release with details on our second quarter performance. This can be accessed on the Investor Relations section of our website. In addition, this call is being recorded and a replay will be available following the conclusion of the call.
During today’s call, we will make statements related to our business that maybe considered forward-looking under federal securities law. These statements reflect our view 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 risk and other important factors that could affect our actual results, please refer to those contained in the final perspectives for our IPO which is on file with the SEC. Also during the course of today’s call, we will refer for certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release. And finally at times in our prepared comments or responses to your questions, we may offer metrics that are incremental to our usually 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 on the future.
With that let me turn the call over to Scott for his prepared remarks.
Thanks John and welcome everyone to our first earnings call as a public company. We had a very strong second quarter with accelerating revenue growth that was twice the rate of year-over-year for e-commerce, revenue came in at 16 million, an increase of 29% from a year ago, core revenue grew 31% from a year ago. We believe we’ve been establish ChannelAdvisor as a leader in a large under served market that is still in its very early days. Our results for the second quarter reflect growing demand from online retailers for a robust cloud based platform in an environment of continuing secular growth of e-commerce.
Since this is our first call as a public company. I want you to take couple of minutes to provide you some background on ChannelAdvisor including the secular and business trends they are enabling us to capitalize on a significant opportunity in front of us. ChannelAdvisor is a leading provider of software and service solutions that enable online retailers automate, optimize and expand sales. Through a single integrated platform, we enable online retailers to reach buyers across three types of e-commerce channels.
Market places, comparison shopping engines and paid search. Many of you are already familiar with the secular trend of retail sales moving online, this is creating an e-commerce market that gain share and are now pacing the growth of overall retail sales. Forrester expects that global be e-commerce spending will grow at a compounded annual growth rate of 15% to 1.1 trillion from 2011 to 2016. And in the second quarter e-commerce growth of 15% was consistent with the long term trend. Despite all the growth we experience in e-commerce online sales are still 18% of total retail sales in U.S. so plenty of room to be one in the secular trend. We track five new innovations that are driving the growth of e-commerce, the first of these is proliferation of online market places as a result of what I would like to call the Amazon affect.
Amazon third party market place has been so successful the numerous other retailers and non retailers such as Best Buy, Sears, Wal-Mart, Groupon and Newegg have all created their own third party market places. Next is mobile or local, for anticipates mobile commerce is going from $6 billion in 2011 to $31 billion in 2016 which represents a 39% compounded annual growth rate driving new intersections with local commerce such as the e-Bay Now project.
We expect the rising growth of social network such as Facebook, Twitter, Instagram and Pinterest be another long term e-commerce driver even though they don't overlap very much today. For example in the second quarter both Pinterest and Twitter announce e-commerce oriented features initiative. The fourth way of innovation that we track is the global e-commerce opportunity.
I mentioned earlier the global commerce will be greater than a $1 trillion by 2016 regions such as Latin America are growing north of 30% year-over-year and Asia Pacific including China is going more than 20%, business creating demand from online retailers across the globe that want to sell their products to any countries consumers in any other country, what we call Cross Border Trade or CBT.
eBay state (inaudible) recently pegged cross border trade e-commerce $106 billion today going to over $300 billion by 2018. The final innovation wave is what I would like to call B2B is the new beta scene. There is emerging trend of B2B commerce starting to look more and more like B2C commerce as online venue such as Amazon Supply, Grainger.com and Alibaba are all putting the business by what the consumer like experiences in strategies. The challenge for online retailers in this word is to successfully navigate these innovation waves or risk losing share in a rapidly changing environment with very limited technical resources to begin with.
This is where ChannelAdvisor comes in. First let me state what we do not do, we're not an e-commerce platform or a shopping cart. Our partners like Demandware, ATG, [Venda], NetSuite, Shopify, Magento and many others do a great job at delivering that functionality. But these solutions assume the consumer has already arrived at retailer's website and that they have found a retailer. Being found in the first place is a significant challenge in the competitive world of e-commerce that's where we come in. What ChannelAdvisor does offer is a cloud base platform that allows online retailers to easily automate, optimize and expand their online sales across hundreds of third party channels through a single integrated platform.
Our platform maximizes the visibility in sales for customers across marketplaces like Amazon, eBay, Newegg, Rakuten Buy.com and Sears, comparison shopping engines and search engines like Google, Bing and Yahoo!.
In other words once retailers have built a great site, our software allows them to manage the acquisition of qualified buyers to their site be a comparison shopping engine, or the pay search, or put their products in front of hundreds of millions of consumer that spend hundreds of billions of dollars on marketplaces like eBay and Amazon. It's important to note that ChannelAdvisor is a scaling solution not a starter package. In fact we have found that the general rule of thumb is that our solution is best for those online retailers that have already demonstrated the capacity to scale to at least a $1 million a year in online sales are more.
When we look at our addressable market, we estimate that there are approximately a 110,000 online retailers with gross merchandise volume above a million a year. With over 2,000 customers we are recognized in the trusted partner and industry leader in the market but clearly with only about 2% of the market, we have only scratched the surface for this opportunity. Having established an early leadership position in the market and with considerable opportunity ahead of us, we are laser focused on driving topline growth and scale which we believe will ultimately position us to achieve our long-term profitability targets.
Fiscally, we demonstrated the increased investments in sales and marketing can drive an increase on our revenue growth and we're focused on optimizing that growth over the near to medium term. The completion of our IPO at the end of May provides us with increased capital to execute our growth strategy and also needle us to leverage the visibility of being a public company.
I would like to conclude by saying our long-term goal is to grow significantly faster than e-commerce. In the second quarter, our growth rate was approximately twice the rate of e-commerce, which is an achievement we're very proud of. It's important to note that we could not have achieved this goal without our dedicated team of over 450 professionals at ChannelAdvisor in the partnership that we enjoy with our over 2,000 customers.
With that, I'll turn it over to David Spitz, our President and COO who will share some of the operational highlights for the quarter.
Thanks, Scot. We are pleased with our strong topline performance in the second quarter. We successfully executed across five key elements of our growth strategy to contribute to this growth including the overall growth of e-commerce and software and service, investment in sales and marketing, expansion into international markets, land and expand strategy and emerging network effects as we broaden our platform.
During the second quarter, we continue to aggressively hire onboard sales representatives, roughly doubling our sales headcount over the last year or so. The successful ramping up of our growing sales staff is one of the primary drivers of our customer growth. In the second quarter, we added a record 138 net new core customers including great brands like OfficeMax, New Balance and Karen Kane reaching a total of 2,135 core customers worldwide, up 17% from a year ago. Interestingly, because of the rapid growth in our sales team, well they roughly half of our sales team has been with us for less than a year. In our experience it takes about a year perhaps to reach full productivity. So we believe we will continue to see gains from our sales investments as our newer reps mature and gain tenure in our organization.
We’re also continue to invest heavily in our marketing and lead generation efforts driving our pipeline to record levels which we believe will support the continued success of our sales team going forward.
We enjoyed record attendance at our largest event of the year, our Annual Catalyst Conference where customers and partners come to hear for best practices and trends from industry luminaries and headline executive presenters from Amazon, eBay, Facebook, Google and Forrester Research.
In addition to bringing on board many new customers, we successfully executed against our [lend] and expand strategy by increasing our average revenue per core customer 13% year-over-year to over $29,600 on a trailing 12 month basis. We spend our revenue from customers in two ways by growing our customer sales measured in gross merchandise value or GMV and by offering new platform modules to our customers.
Because of our shared success business model, our revenues generally increased when customers increased their sales on channels we manage for them. This means that ecommerce growth in general and our ability to increase sales for our customers specifically, create a tailwind of inherit growth for us.
Furthermore, the modular nature of both platforms, usually we have additional opportunities to expand within our customer base overtime. Since success with one modular platform, ultimately leads to customers subscribing to additional modules.
Turning our attention to international expansion, approximately 50% of global e-commerce occurs outside of North America today. With just 21% of our revenue generate from outside of North America, during the second quarter. We have considerable opportunities to scale our business globally. In April we were thrilled to announce the opening of our newest office in Hong Kong making at eight offices across six countries. We expect the same presence in Asia for strengthen our connection to China and to better serve our growing base of Chinese customers.
We are incredibly excited about the opportunities with Europe and Asia and clearly we only just scratched the surface of the region potential for us. Several other trends are also contributing to our growth that I think are worth mentioning. The first is mobile, as many of your know smartphones and tablets are rapidly gaining share that connect with device markets from traditional desktop and laptop computers and as Scott mentioned, we to expect mobile commerce to go at 39% for each of the next few years.
We believe e-commerce aggregators like Amazon and e-bay as well as newer market places will benefit disproportionately from a shift to mobile because marketplace is by definition enjoy broad product selection, competitive pricing and a high degree of convenience since they store consumer payments and shipping information within the app.
In short, consumers only need a couple of apps on their device to easily find, research and purchase products and we believe those apps with the marketplaces like e-bay and Amazon are more often or not. We are even seeing success in pitching marketplaces as the strategic plan and the mobile strategies of retailers who previously might not had considered for instance selling on the traditional eBay website.
As of August, third-party integration platform about eBay and Amazon worldwide, we believe that this fundamental shift to mobile provides with the opportunity to the group connecting thousands of retailers and billions of dollars in transaction volume to this marketplace platforms.
Another factor contributing to our strong growth is the move by more brands and manufacturers to connect more directly with consumers online. This is not only true for consumer oriented brands but this model is increasing being adopted by traditional and B2B manufacturer looking to attract business buyers with consumer like strategies.
These manufacturers are seeing increased competition on fast growing channels like Amazon particularly AmazonSupply and are making a strategic decision to more directly control the consumer experience for their products on these channels.
In the second quarter, we successfully added several traditional manufacturers including MSM Electric, Kitchenaid and Sony Australia, each seeking ways to engage consumers more directly through online channels.
We believe that this relatively new segment for us represents total ground for expansion of our platform and market share. An additional contributor to our growth is the network effects from channel expansion.
We announced several new channels in the second quarter including Amazon Italy and Spain, which now gives us total coverage of all European countries supported by Amazon as well as Rakuten Play.com in the UK and La Redoute a French marketplace. Collectively these new channel partners service new sources of consumer demand and GMV growth for our existing customers which in turn benefits us given our share of success business model. And in addition, these new channels help to track new customers through our platform often referred to us by those day channel partners.
Finally, as we grow in scale our organization, it is important that we continue to promote top performers and leaders in addition to bringing a new talent. I'm pleased to announce that we had the three talented individuals to our senior leadership team in the second quarter. This includes internal promotions to Vice President of product management and Vice President of Enterprise Sales, while we recruited a new executive to run a global services organization. All three positions were newly created and I'm thrilled about the leaders that we've put in place.
Now I'd like to turn the call over to John for details on our financial performance for the quarter and our outlook for the rest of the year. John?
Thanks, David. As David and Scot indicated, we had a strong second quarter with total revenue growth of 29% and core revenue growth of 31%. Before I dive into the financial details for the quarter, I thought it might be helpful to provide you with a bit of context to assist to interpreting our results. We derived our revenues from customer subscriptions to our platform. Our contracts are generally for one year and most have auto renew features. The subscription fees are based upon the GMV that a customer processes on our platform.
We break these fees into two components, fixed subscription fees and variable subscription fees. When a customer enters in to an annual subscription contract, they commit to pay in for a minimum monthly level of GMV and pay for this regardless of the actual level of GMV processed.
In addition, they commit to pay in an incremental or variable fee on GMV in excess of the monthly minimum to which they have subscribed. The fee on the variable GMV portion is slightly higher than on the fixed portion which motivates customers to move up to higher minimum commitment levels over time. As a result, we're seeing a steady increase in the portion of our revenue that is from fixed subscription fees as our customers grow and commit to higher levels of GMV.
In the second quarter, fixed subscription fee revenue was 67% of total revenue, an increase from 62% for the same quarter last year. This increase in fixed subscription fees has three important implications. First, it provides us with strong revenue visibility. Second, many of our customers pay the fixed portion of their subscription fees in advance, while the variable subscription fees are billed monthly in arrears. A higher mix of fixed fees enhances our cash flow. And third, it means that while long-term trends in GMV are important to our business, in the short-term GMV is not a very precise predictor of our revenue levels since customers’ GMV falls below their minimum committed level, still pay the fixed subscription fee.
Given this third point, we believe that the customer count and average revenue per core customer metrics that David provided are the best metrics to utilize in accessing our business performance.
David mentioned some of the channel partners we’ve launched on our platform I want to note that in some cases we derive revenue from these launches. Our practice is to defer such revenue until we complete our implementation efforts and then to recognize that revenue in a catch-up adjustment.
In the second quarter, our revenues benefited from this dynamic which contributed approximately 250 basis points of our overall 31% growth for the quarter. Beyond our accelerating rate of growth, our revenue continues to be highly diversified, our top 10 customers account for less than 10% of our revenue and customers outside of the U.S. accounted for 21% of revenue in the second quarter.
Now I’d like to turn to the rest of the P&L. Adjusted EBITDA which excludes stock compensation expense of $0.5 million and $0.2 million in the second quarter of 2013 and 2012 respectively is the primary metric we use to measure our profitability internally. Our adjusted EBITDA for the quarter was negative $2.0 million compared with negative $1.3 million last year.
The decline in adjusted EBITDA was attributable to a 31.1% increase in gross profit offset by a 34.9% increase in operating expenses. The increase in gross profit was driven by the significant increase in revenue as well as by the higher gross margins on that revenue.
Gross margins increased to 72% in the second quarter of 2013, compared with 70.7% for the corresponding period last year. The increase in gross margins reflects the scalability of our business model as the substantial portion of our cost of goods are fixed or semi-fixed.
Operating expenses increased 34.9% to $15 million in the second quarter of 2013 compared with $11.1 million in the second quarter of 2012. Measured as a percentage of revenues the 430 basis points increase in operating expense was attributable to a 490 basis point increase in sales and marketing and a 150 basis point increase in G&A expenses, partially offset by 210 basis point decline in R&D expense.
Stock compensation expense which is included in the individual operating expense line accounted for a 120 basis point increase in overall operating expenses.
The growth in operating expenses was primarily driven by higher sales and marketing expense which increased 40.4% to $9.3 million in the quarter compared with $6.6 million last year. This substantial and planned increase in demand generating expense reflects our confidence in our large addressable market and our ability to further penetrate this market by creating wider awareness.
We significantly increased the size of our sales force during the quarter and as these representatives become fully seasoned we believe that we will continue to generate solid revenue growth.
As David indicated we also supported the increase in sales representatives with additional investment in marketing and lead generation. General and administrative expenses increased by $0.8 million or 41% to $2.8 million in the second quarter reflecting the increased costs associated with being a public company. R&D increased $0.4 million or 15.3% in the quarter.
Our GAAP net loss for the quarter was $5 million or $0.56 per share based on a weighted average share count of 8.8 million shares. Our non-GAAP net loss was $4.5 million or $0.25 per share based upon 17.5 million shares outstanding which assumes conversion of preferred shares at the beginning of the quarter.
Our operating cash flow for the quarter was negative $1 million compared with negative $0.1 million in 2012. Free cash flow which we calculated by subtracting by capital expenditures of $1.1 million and $0.4 million in 2013 and 2012 respectively with the outflow of negative $2.1 million compared with an outflow of $0.5 million in 2012.
The year-on-year change in free cash flow reflects the increase in marketing and sales expenditures, the payment of IPO related costs and investments in new systems and hardware to enhance our scalability.
With the net proceeds of our IPO we ended the second quarter with $94 million in cash and are well positioned to continue to invest in accelerating our rate of revenue growth.
To wrap up I'd like to discuss our outlook for the third quarter and the full year. For the third quarter we expect revenue to be between $15.7 million and $16 million and we are forecasting an adjusted EBITDA loss of between $4.6 million and $4 million. This adjusted EBITDA guidance assumes estimated stock compensation expense of $0.6 million to $0.7 million for the quarter and we expect a non-GAAP net loss per share of between $0.29 and $0.26 per share, based upon approximately 22 million weighted average shares outstanding. For the full-year, we expect revenue to be between $66.1 million and $66.7 million and we're forecasting an adjusted EBITDA loss of between $11.9 million and $9.9 million. This adjusted EBITDA guidance assumes estimated stock-based compensation expense of between $2.1 million and $2.6 million for the full-year and we're forecasting a non-GAAP net loss per share of between $1.89 based on approximately 19 million weighted average share outstanding.
So in summary, we're pleased with our strong second quarter and we believe that the results confirm our strategy of stepping up our investments, selling and marketing to accelerate our long-term revenue growth rate. We believe that as the leader in a sizeable, growing and largely unpenetrated market, we have a long runway for future growth and we plan to continue to spend aggressively against the opportunity. So with that operator, will you please open the call for questions?
Thank you. (Operator Instructions) Your first question which is from the line of Heath Perry of Goldman Sachs. Please go ahead, sir.
Heath Perry - Goldman Sachs
Just, two questions. First I would be interested if you can give us a sense of what you are seeing in terms of the impact that Google launch of PLA as having on both the total spend by your customers and in particular the spend that you are seeing within the search category there. Whether it’s increasing the size of the overall category? And then also you mentioned that a portion of your customers, or portion of your revenues is coming from our customers that are sort of following below the threshold that they’ve committed to can you give us a sense of how significant a piece of revenue that is and whether or not that’s a source of growth or if that’s being moderated as other parts of the business grow?
It’s Scott I’ll take the first question, which I believe was PLA related and just as a background for those of on the phone that may not be kind of familiar with the industry link of PLAs short for product listing ads. Its Google’s new comparison shopping engine called Google shopping. And what Google has done is kind of created a new ad unit if you will that it’s been very strong for us, because unlike page search where you are dealing with key words and ad campaigns and a pretty simple interface PLAs are relatively complex. So that has been very good for us, it’s a little complicated because its taking share from search, so if you look at our same store sales that we released you will see the search has a bit of headwind, but our update we put PLAs in comparison shopping, the rest of comparison shopping industry is getting headwinds from PLA. So the macro answer it has been very good for us, we have a lot of customers utilizing ChannelAdvisor for that because, we are equally situated to deal with more complex ad unit like this the deals with inventory and closing that loop which is definitely very much in our warehouse. With that I turn over to Dave to answer your threshold questions.
I don’t think it’s necessarily trends as it relates to customers falling below the threshold. I think what you are seeing is as we accelerate revenue and as we accelerate the growth of our customer base, so we added obviously a significant number of new customers and as those customers tend to ramp, they are going to be at certain whatever the threshold is they take from our pricing perspective but as I sort out and as they ramp because we are going to be below because there is the ramping period.
So I think what you are seeing is a little bit of a shift towards of accelerating proportion of our e-customer population that is new and therefore potentially below that threshold. There is also mix overtime, this is the pricing model that we instituted in 2010 and so they are still customers that are more variable pricing model from before that time, and so as that, as our new pricing model essentially watches through our customer base that is something obviously contribute to an increasing mix towards fixed.
And your next question is from the line of Brad Reback of Stifel. Please go ahead, sir.
Brad Reback - Stifel
So the couple of questions on the sale side, number one on sales hiring, what the pipeline looks like as you add more people there, has the IPO helped you to attract or make it easier to attract new hires there, and number two as you look at the sales pipeline have the characteristics of potential customers change scenario they are getting any bigger, any color would be great, thanks?
Yeah, Brad this is David. Yeah, from a sales hiring perspective I am very pleased with our process there as you know we have aggressive goals in terms of sales force and I am very pleased with our progress in terms of attracting and recruiting and on boarding our sales team so I am very pleased with that and certainly, I think the IPO gives us a degree of visibility and stability that can always help attract more people. So I guess I would say that's been helpful to us.
As it relates to sales pipeline itself, as you know we have a very nicely diversified customers based that ranges from very large customers I mentioned after OfficeMax and Karen Kane and folks like that as well as a nice mix of midmarket customers that are smaller emerging brand.
And what I would say is that our pipeline has been fairly consistent in that regard, as the pipeline grown significantly over the last couple of quarters and it's grown significantly in all segments. So no particular shift one way or the other, but I see good growth in all areas.
Thank you. The next question is from Michael Huang from Needham & Company. Please go ahead sir.
Michael Huang - Needham & Company
Thanks very much. Just a couple of questions for you guys. So I think you mentioned on the call that you guys are opening up an office in Hong Kong. Could you remind us who are your key channel partner relationships in this region and are there any new marketplaces that you're working on that could be announced at the end of the year and just remind us how many customers do you have in that region.
Hey Mike, I’ll kind of give you a broader review, we started in Asia Pacific with Australia actually and we kind of pulled into that region, because eBay is very popular in Australia. That office has been before the Hong Kong office has being servicing China for us and we find up a fair number of Chinese customers. And then the Hong Kong offices reaction to that we are being pulled into the market where I find a lot of other startups kind of pushed their way into that market and that can be a tough talk.
The characteristic I would say is very interesting is we don’t support any of the local marketplaces. So we're well aware of the Alibaba family of companies, (inaudible) Timon and their scale. Amazon has an operation there.
Then you have 360 buyer, kind of some of the bigger ones. But what's happening is that our customers in China are using up our software for exports. So we actually haven't had a ton of demand for the local markets from that particularly set of customers. They are more interested in selling outside of the borders of China into Europe, the U.S., especially North America and then also in to Australia. We have had some request for translating the software and demand. That’s something that we will continue to look at and think about but right now it's mostly a cross border trade kind of a solution and doing very well in that market with that positioning.
Michael Huang - Needham & Company
Got you. And so I think you announced some nice wins in some larger retailers and brands. I was wondering if you could just give us an idea or sense for what they are typically buying from you guys and how does that compare relative to what the smaller guys are buying?
Mike, this is David. So it really depends on the customer. Customers typically come to us with a key need, they may have decided to sell on a channel that they haven't sold on before. Maybe they aren’t happy with their current partner that they are using. So in many cases, it just depends on what that particular customer situation is at the time.
What I will tell you is historically, we tended to see market places a bit more popular on the mid-market side of our customer base. These are customers that sell predominantly through the marketplaces like eBay, Amazon, etcetera and on the enterprise another of our customer base with the established websites they might be more interested in traffic generating channels by comparison shopping and search.
I will say into last year and half to two years those boundaries have blurred fairly significantly as midmarket customers grow, they want to establish their own identity and leverage traffic and rating channels to a websites and increasingly I touched on the theme of mobile earlier.
Lot of retailers are looking very seriously at selling on marketplaces including eBay and Amazon, and so we are seeing good success there as well. So I would say the trend is if anything more towards convergence.
Thank you. The next question is from Chad Bartley from Pacific Crest. Please go ahead.
Chad Bartley - Pacific Crest
Just want a follow-up on the customer additions, new ads of 138, I think that’s the largest you’ve ever done in a quarter, can you talk a little bit more about what drove that if there is anything kind of one-time nature there and then also how we should think about seasonality and quarterly ads going forward? Thanks.
Chad this is David. Yeah, we are very pleased with the growth of our customer base. I think our strong and accelerating revenue growth and customer growth really reflects the investments that we’ve been making in sales and marketing both domestically and internationally and our expanding channel relationships. I think our value proposition is stronger than ever of ecommerce continues to evolve rapidly, retailers and manufacturers need help making sure that they are spending front of consumers and managing the complexity comes with keeping up with the change in the industry.
I think we also are working more closely than we ever have with channel partners. So ever channel partner that we work is interested in increasing the selection of products on their sides, the price competition and just generally having many as products as possible available on their site and we represented very high quality network of retailers and manufacturers to bring that kind of supply, so we have been working and collaborating with the number of our channel partners and more closely than ever in terms of customer on boarding and lead regeneration and that is been helpful too, but no particular one-time activity or anything like that is contributed to the growth of our customer account.
Chad Bartley - Pacific Crest
Should we as a follower thank you, should we think about this is kind of sustainable level then certainly above of what we seen historically?
Well, I think the way we look at is we think the two metrics that are important in conjunction with each other, we have customer accounts and we have average revenue per customer, and a lot of time just sort of depends on the pipeline mix. So we don’t compensate our sales reps differently at pace out to an existing customer for example, the customers buying a new module or selling to net new customers.
So our sales team is free to sell regardless of whether the new or an existing customer and so that reason and it depends a little bit more on the mix is in the pipeline and given point in time, (inaudible) where there is a heavier emphasis on new customer additions, you may see quarters where there it depends on swings more towards the growth and average revenue per customer for selling more towards end customers.
We have generally said and believe that over periods of time roughly half of our revenue growth will come from each of those two components. So, hopefully that’s helpful for you.
Thank you. And the next question is from Karl Keirstead of BMO Capital Markets. Please go ahead.
Karl Keirstead - BMO Capital Markets
Thank you very much, I have got few questions one for David and one for John. David just given that the ramp of the sales count and productivity is fairly central to the ChannelAdvisor story, your comment that you hard hit enterprise sales that caught my attention, so maybe you could just elaborate a little bit on that higher and what prompted it?
And then for John, just looking at your second half total revenue guidance, it equates to about 23% versus the 29% you just posted still good and better than my numbers to be clear. But I’m just wondering what went into the calculus here, is it that, you don't want to assume those catch up adjustments that helped you in 2Q being conservative, maybe you could just flush that out a little bit for us?
Hi Karl, this is Dave. So on your question, our Vice President of Enterprise sales was actually a promotion. So it wasn't a new hirer from outside of the company. We had an individual that had been running our U.S enterprise sales and we expanded his responsibilities to include Europe and obviously on the basis of historical performance so he was promoted into that role. And obviously as we continue to expand our sales force aggressively, we need to continue to focusing on expanding our management team and keeping up from the management structure as well and that was really the motivation for that.
Karl Keirstead - BMO Capital Markets
Yeah Karl, you hit the nail on the head with the second part. I mean one of the things that you look at Q2, we probably got about 250 basis points as I said from of growth because of the catch-up adjustments. In addition as we look into Q3 and Q4 about 21% of our business is international and we are seeing some softening in the exchange rate which will have a little effect on growth rate in Q3 and Q4. So those are really the primary reasons.
The next question is from Terry Tillman of Raymond James.
Terry Tillman - Raymond James
In terms of the average revenue per core customer, I think you all talked about 13% growth and I may have missed this early so I apologize, but how would you allocate what drives that to folks buying more of your different marketplace solutions or just more product versus just natural GMV growth and then how to think about the balance of those drivers going forward in terms of driving that metric?
This is David. So as you expect, it's a mix of things. Some of it is customers growing rapidly so their GMV grows and (inaudible). So a percentage of their revenue to extend over their threshold or they may increase the threshold and bump up to another subscription tier, that’s certainly a driver of that. Frequently, it's the customer adding a module. So when we talk about a 138 net new core customers, it's actually net new customer. We would have sold new modules in our platform to additional customers that were already existing with us as well.
So for example, we may have a customer that’s using us for market places and they sell on eBay, Amazon, [Cerius] and Newegg and then maybe they add a comparison shopping module or maybe they add search to take advantage of the PLA capabilities that’s got touched on earlier. So I don’t have a specific breakdown for you in terms of how that’s composed, but it's definitely a mix and it's a kind of mix that we would expect to continue going forward. I think they are both probably significant contributors.
Terry Tillman - Raymond James
Okay. And David, I guess, while you are there in terms of, the sales and marketing investments, the aggressive investments there. How much is allocated actually towards maybe account management teams to go into the install base and make sure those folks are using the product effectively so they can grow their GMV or try to add more up-sales of those products into the install based, so how much allocation is towards folks really going after that?
Yeah, great question. So we have been investing also in account management as well as with the call customer success. We obviously want to make sure given our share success business model that our customers are ramping successfully and that’s an area that we have been investing in fairly significantly. And I mentioned that we did higher, a new member of our executive team to head up what we call client services and that’s account management including customer success and customer support and all our professional services team all roll up under one executive now to really focus on that.
Now to be clear, our account management team is there to really manage the success in the business relationship with our customers. We still rely on our sales team for the actual acquisition of new business both with new and existing customers. So as you expect our account management team and our sales team work very, very closely together, but we have been investing heavily and that is as you point out because obviously the long-term success of our customer is just as important as getting them on board in the first place.
Terry Tillman - Raymond James
Got it. And I guess just a follow-up question on kind of the install base and then the success you are having, could you give us an update maybe the average number of modules per core customer and maybe how that trended?
Yeah, I don’t have a specific number for you Terry, but what I can tell you is that probably fairly stable from where we’ve had historically and it goes back to that the mix of population right. So as we are adding the number of new customers to us and I think that does from earlier where most customers come to us typically and subscribe to one module initially or may be two but often one module. And they may add modules over time certainly. So if you were to look across our population of customer you will certainly see, customers that have been with us 2, 3, 4, 5 years are much more likely to have multiplicity of modules. Those that are being with us for let’s say less than a year or much more likely to have one module. So as we continue to add significant net new customers to our basis sort of at least the pool in that regard, so it’s not a number that we track from a public perspectives for that reason.
Terry Tillman - Raymond James
Okay. And then I guess either Scot or David. You know you talked the spring 2013 release in terms of the support for Amazon B2B categories. Just I guess at least from education, I am curious how much of business is actually driven off of B2B categories now and how relevant it could that be going forward?
We don’t really disclose category information. What I will say is this overall trend of B2B getting really in kind of this consumer marketplaces is very early days. We did have some interesting wins in the quarter and we are having a lot of inbound conversations as people realize, what is happening in these B2B companies is they have manage these channels for a 150 years and add down to the decimal point control over these channels be it forming surplus kind of a channel and something like that. And then literally in the last 12 months they have been entirely disrupted by things like Amazon supply. So lot of our conversation are still a very early and helping to educate these kind of companies on what is this model, there is no offline analogy for a marketplace like this.
So we are doing a lot education around the B2B space right now. And so I think that still very nascent in this trend and something that we are keeping a very close eye on and helping some customers to understand and hopefully that will turn into a lot more.
Terry Tillman - Raymond James
We have no further question in the queue. I will now turn the call back to Mr. Scot Wingo for closing remarks. Thank you.
Thank you again for joining us on our first conference call as a public company. We delivered strong results for the second quarter and we're optimistic about our outlook for the remainder of the year. We continue to make progress against our goal of accelerating revenue growth and market share gains and we're still only in the early stages of executing against our sales expansion plans.
As we look ahead, we believe that ChannelAdvisor is uniquely positioned to capitalize on the continued growth and increasing complexity of multichannel e-commerce. We look forward to seeing attendees at the Pacific Crest Global Technology Leadership Forum next week and also to speaking with you again next quarter to discuss the progress made executing against our strategic growth initiatives. Good bye.
Thank you ladies and gentlemen for your participation in today's conference call. You may now disconnect. Enjoy your rest of your day. Thank you.
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