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ChannelAdvisor Corporation (NYSE:ECOM)

Q3 2013 Earnings Conference Call

October 28, 2013 4:30 PM ET

Executives

John Baule - CFO

Scot Wingo - CEO and Chairman

David Spitz - President and COO

Analysts

Greg Dunham - Goldman Sachs

Michael Huang - Needham & Company

Terry Tillman - Raymond James

Brad Reback - Stifel

Chad Bartley - Pacific Crest

Operator

Good day ladies and gentlemen and welcome to 2013 Third Quarter ChannelAdvisor Earnings Conference Call. My name is Derick and I will be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. John Baule, Chief Financial Officer. Please proceed.

John Baule

Good afternoon and welcome to ChannelAdvisor's conference call for the third quarter of 2013. I am John Baule, Chief Financial Officer of ChannelAdvisor. And with me on the call today are Scot Wingo, CEO and Chairman, and David Spitz, President and COO. After the market closed today, we issued a press release with details on our third quarter performance. This 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 following 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 the final perspectives for our IPO as well as our other filings which are available on the SEC website at www.sec.gov. During the course of today's call, we will refer to certain non-GAAP financial measures. 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 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.

And with that let me turn the call over to Scot for his prepared remarks.

Scot Wingo

Thanks John and welcome everyone to ChannelAdvisor's conference call for the third quarter of 2013. We are excited to report today that we had a strong third quarter. Revenue came in at $16.6 million and core revenue grew 30% year-over-year more than twice the rate of growth of e-commerce as reported by comScore. As we headed into the critical seasonal holiday period for e-commerce and end of the year I wanted to update you on some industry trends that we monitor closely. There are five trends that we call the five ways of innovation that we see driving continuing growth in e-commerce. First is the Amazon effect. I would like to say you can't talk about e-commerce without first talking about Amazon. Amazon recently announced 26% year-over-year revenue growth which is twice the rate of e-commerce. One driver of Amazon's success is the third party marketplace. 40% of Amazon's unit sales are from the third party marketplace and we estimate that the gross merchandized value from the Amazon third party marketplace is now around $60 billion globally, second only to eBay and closing quickly. Another key driver is their investment fulfillments and capabilities married with the prime program that offers free two day shipping for $80 a year. We believe the Amazon now has over 105 fulfillment facilities and 70 million square feet of fulfillment center space. [Inaudible] investment Amazon now has over 224 million active buyers and accelerating revenue growth in many of their categories.

In the third quarter, we announced support for Amazon China and Amazon Japan bringing us to support for nine of their global sites. Also we continue to enhance our Amazon solution with innovations around FBA which is Fulfillment by Amazon and re-pricing. In reaction to Amazon success we are seeing two ripples in the world of e-commerce. First is an explosion of third party marketplaces, retailers like Best Buy, Sears, Tesco and Wal-Mart are adding market places. Plus there are exciting new takes on market places such as Groupon Goods for deep discounted items, OneStopPlus for plus size apparels and Wanelo which is a mobile oriented social market place. We recently announced support for Best Buy and Tesco in the U.K. In fact, we now support over 35 market places globally.

Also we are seeing many of our other channel partners innovate around delivery. For example, this quarter eBay announced two programs. The first is in the U.K. and is called Click and Collect. It allows consumers to choose have their packaged delivered to a local pickup store provided by Argos, a leading general goods retailer in the U.K. This program is initially in 50 stores and plans to expand to all 740 Argos stores if successful.

In the U.S. you will be able to buy through eBay online and pick up items in store at merchants such as Toys R Us and RadioShack this holiday. ChannelAdvisor is excited to be a launch partner for both of these initiatives.

The second wave is mobile. A recent industry report on mobile e-commerce showed that the top applications for mobile commerce both via mobile browser or an app were Amazon with over 140 million multi platform users followed second by eBay with 90 million multi platform users. This clearly reflects consumers' de-facto preference for marketplace model when it comes to mobile commerce. Because of this trend retailers are increasingly interested in leveraging these platforms for mobile transactions and ChannelAdvisor is enabling their success.

Also in this quarter Google rolled out their enhanced campaign functionality for AdWords or paid search which we are fully supporting at launch. Our enhanced campaign support allows retailers to differentiate their mobile, smartphone bids and paid search as well as create mobile ads and site links. We also enable mobile bidding so that retailers can target unique mobile ROI goal; this feature is unique to ChannelAdvisor and strategic for retailers.

The third wave is social networking. Twitter, Facebook and Pinterest all have e-commerce initiatives. It's still very early days but we believe over the long run e-commerce and social networking will intersect in interesting ways. For example, in the third quarter we released functionality that allows retailers to support Pinterest new rich pin initiative. Before rich pins if someone pinned a product from a retailer, it was easy for that product to get orphaned and future viewers of the pin were unable to find the product's retailer. Rich pins allow the retailer to broadcast to the pins from their site and make sure they still link properly to the correct product page. Additionally, the retailer can push in stock information and pricing updates to all of their related pens.

The fourth wave is cross border trade. Nielsen recently released a study that forecasted cross border trade will grow from $105 billion today to $307 billion by 2018, a 200% growth rate. Consumers across the globe want to buy any product from any retailer at the best price they can find. In the third quarter we introduced a cross border trade framework we called Agile Cross Border Trade. The conventional cross border trade strategy is deep investment in country specific web stores. This approach puts all the expense upfront and can take 12 to 18 months before you have any feedback or revenue from consumers. With Agile Cross Border Trade we reversed that by leveraging the world's top market places and their million of active buyers. With the Agile Cross Border Trade approach retailers can get their products in front of consumers in two to three months and start generating revenues and learnings sooner rather than later.

During the third quarter we delivered on the Agile Cross Border Trade initiative by translating our software into five languages and launching Amazon China, Amazon Japan, Tesco in U.K. and MercadoLibre in Brazil.

Finally, the fifth wave I call B2B is the new B2C. As people in their home lives get used to e-commerce conveniences such as filtered search, recommendation engines, one click shopping and fast free shipping they increasingly expect these conveniences when they buy products in their work lives products such as office supplies, bolts, fasteners, motors and plumbing supplies. This quarter, we continue to add traditional manufacturers such as Whirlpool as customers. We also were asked to present at several B2B conferences such as Channel IQ’s Channel Management Summit in Chicago and the Business Marketing Association Conference in St. Louis.

Consumer trends are disrupting the way that businesses buy and we continue to be a thought leader and hoping the consumer orient brands and manufacturers explore how to leverage our experience in B2C e-commerce and their B2B initiatives. We believe these five waves of innovation will continue to fuel the secular 15% year-over-year growth forecasted for e-commerce for this foreseeable future.

Finally, I wanted to thank the team at ChannelAdvisor for all their hard work this quarter. We were just awarded the Triangle Business Journal's Best Place to work award for the third straight year in a row. This is a strong testament in the culture we have built and are working hard to sustain post IPO.

Now I will turn it over to Dave Spitz, our President and COO, who will take you through some operational highlights in the quarter.

David Spitz

Thanks, Scot. We are very pleased with our third quarter performance especially our continued strong pace of new customer acquisition. While the five waves that Scot highlighted represents strong underlying market trends helping to drive e-commerce growth overall, as a company we are specifically benefiting from four key strategies. Our investments in sales and marketing and research and development, expansion into international markets, our land and expand strategy, and emerging network effects as we broaden our platform. These drivers were all factors in our strong third quarter performance which was highlighted by 30% growth in core revenue.

During the third quarter, we continued our strategy of aggressively hiring and on-boarding sales representatives worldwide. These investments and a successful ramping of our growing sales staff are primary drivers of our deepening relationships with existing customers and the continued expansion of our customer base. In the third quarter, we added 152 net new core customers including leading global brands like Body Central, Claire's Accessories, Colony Brands, Elie Tahari, Godiva Chocolatier, Maxi-Muscle and Whirlpool, reaching a total of 2,287 core customers worldwide, up 21% from a year ago. In addition to our growing sales organization, we are winning in the market because of our industry leading global platform and a reputation for investing in our customer success. To support our growing sales team we have also ramped up and focused our marketing investment on demand generating activities from list acquisition to aggressive campaigning and prolific speaking engagements.

We believe this top of funnel efforts have increased awareness of our platform and are contributing to the significant uptick in new customer acquisition we have seen over the last couple of quarters. Over the past few months, our marketing efforts included our participation at numerous trade shows and events in the U.S., Europe and Asia Pacific, further cementing our reputation as a thought leader in global online retail. Recent conferences where we had presence included the Shop.org Annual Summit, Women's Wear Daily Digital Forums in both London and the U.S., The Rakuten East Expo, the E-Commerce Paris Conference, the Sellers Conference for Online Entrepreneurs, the Internet Retailing Conference in London, and Magento Live.

We were also very pleased to announce a partnership with NetSuite which we believe will make it easier for thousands of NetSuite customers to gain access to all the channels we support while also giving our customers access to a robust back office platform to help them scale. In addition to bringing on board many new customers, we successfully executed against our land and expand strategy by increasing our average revenue per core customer 11.6% year-over-year to over $30,100 on a trailing 12 months basis.

Turning our attention to international expansion, I mentioned on our previous call that approximately 50% of global e-commerce occurs outside of North America today, presenting us with considerable opportunities to expand globally. In October, we were excited to announce the opening of our newest office in Sao Paulo, Brazil in conjunction with announcing our support from MercadoLibre making it our ninth office across seven countries. We expect our expanding presence in Asia and now Brazil to enhance our appeal to global online retailers and manufacturers who seek a strategic partner with expertise and boots on the ground all around the world.

In September, we announced our Autumn Release with numerous new capabilities and to helping our customers increase global sales, to facilitate cross border trade, we introduced Agile CBT as Scot described. To further help optimize our customers online sales, we introduced actionable retail insights which provides specific recommendations for Amazon, eBay, Google and Bing.

Finally, we enhanced our mobile commerce capabilities with features to understand, manage and automate Google enhanced campaign performance across devices, making it easier for online retailers to target and automate mobile paid search. In short, we are not just investing in sales and marketing, we are also investing more than ever in R&D to expand our platform capabilities worldwide and I am really excited about the pace of innovation we are delivering for our customers.

Lastly, we continue to be very bullish on expanding our network of channel partners. This year we've added more channel partners than ever before and recently announced support for Best Buy, Tesco, Amazon China, Amazon Japan and MercadoLibre in Brazil. These new channel partners represents a major expansion of potential demand for our customers both domestically and across all of our major markets including Europe, Asia and now with the addition of MercadoLibre, Latin America, one of the fastest growing e-commerce regions in the world. These new channels represent a significant expansion of our network, which we believe will serve to both expand consumer demand for our customers' products and to attract even more customers to our platform worldwide in the future.

In summary, our strong performance in the third quarter reflects a continued solid execution against our key growth drivers. Investments that we are making in sales and marketing as well as research and development are delivering results and we continue -- we expect to continue those investments. Our land and expand strategy continuous to be successful in driving new customer adoption and in growing with existing customers. We are expanding our international presence and capabilities as e-commerce continuous to proliferate globally. And finally we continue to benefit from the long-term secular growth trends in e-commerce which continues to rapidly gain share of retail consumer spending. As a result, we remain optimistic about our prospects for the remainder of 2013 and beyond.

Now I would 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?

John Baule

Thanks, David. The third quarter represented continued progress towards our goal of capturing a larger share of the very large and under penetrated market for channel management solutions. This is demonstrated by our core revenue growth of 29.7% and our total revenue growth of 27.6% over the third quarter last year. Our growth continuous to be fueled by both new customer acquisition and increasing revenue per customer. As David mentioned, our total customer count increased by 20.6% over the same quarter last year to 2,287 customers. During the quarter, we added 152 net new core customers more than doubling the number of additions in the third quarter of 2012. For the nine months of 2013, we've added 359 net new customers, an increase of 93%. Historically, the bulk of our new customer addition occur in the first three quarters of the year as retailers are generally too busy in the fourth quarter to focus on internal improvements.

Our trailing 12 month revenue for core customer increased to $30,113 as of September 30, 2013, an increase of 11.6% compared with the same period last year. The increase in new customers accounted for 65% of our core revenue growth in the quarter while the increase in average revenue per customer accounted for 35% of our growth. The fixed portion of our contracted subscription fees increased to 70% of the total revenues compared with 66% in the third quarter of last year. This reflects both the ongoing progression of existing client to higher minimums as well as the minimum fees associated with new customers who are still ramping up their operations on our platform. While we expect to see this trend continue on a rolling four quarter basis we also expect to see some quarter-to-quarter variations particularly in the fourth quarter which is seasonally strong for variable subscription revenue.

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 total revenue in the third quarter.

I think it is also worth noting that the weakening Australian dollar and British pound negatively impacted our revenue shaving approximately 1.3 percentage points off of our total revenue growth rate. Overall, we believe the strong revenue growth this quarter further validate our strategy to accelerate our long-term revenue growth trajectory through investment in sales and marketing.

Moving down from revenue let me provide you with some highlights for the rest of the P&L. All the expense lines I discussed are on a GAAP basis. We've included a table providing stock compensation expense by P&L line in our press release.

Gross margin expanded to 72.6% for the quarter, a 200 basis point increase over the prior year. The improvement in gross margin reflects the scalability of our business model. Our largest expense line sales and marketing continued to increase as a percentage of revenues growing 880 basis points over the third quarter of 2012 to just over 56% of revenues. This increase is in line with our strategy of concentrating targeted investment in sales and marketing. We believe that our revenue growth to-date, the opportunity we see before us and the results we are seeing from our new sales hires justify our decision to continue expanding our sales force.

Research and development expenses increased by approximately 22% over the third quarter of 2012 resulting in total R&D spending of almost $3 million in the quarter. We believe that this significant investment in our product strengthens our leadership in the channel management arena. And general and administrative expenses increased 67.6% as we continue to scale up our operations for the anticipated growth and to meet the demands of operating as a public company.

Looking at the bottom line our adjusted EBITDA for the third quarter excluding stock compensation expense of $500,000 in 2013 and $100,000 in 2012 was a loss $2.4 million and was better than anticipated primarily due to revenue and gross margin - our gross profit upside in the quarter. This compares with a $600,000 loss in the same quarter last year.

Our GAAP net loss for the quarter was $4.3 million or $0.20 per share and our non-GAAP net loss was $3.8 million or $0.18 per share also better than anticipated. Both of these per share amounts are based on $21.6 million weighted average shares outstanding.

Turning to the balance sheet. Our operating cash flow for the quarter was an out flow of $1.6 million compared with an out flow of $1.2 million in 2012. Capital expenditures were $1.5 million in the third quarter of 2013 compared with $0.6 million in 2012. Free cash flow which we calculate by subtracting capital expenditures from operating cash flow was an out flow of $3.1 million compared with an out flow of $1.7 million in 2012. Aside from our continued investment in sales and marketing, during the quarter we invested to implement a new ERP system. We ended the second quarter with over $90 million in cash and are well positioned to continue to invest to accelerate our rate of revenue growth.

To wrap up I would like to discuss our outlook for the fourth quarter and the full year. We are pleased with our year-to-date results and in particular with the return we are seeing in increased sales and marketing investments and we plan to continue to pursue this strategy. Our fourth quarter and full year guidance reflect the better than anticipated result in the third quarter as well as increased optimism for the fourth quarter. For the fourth quarter, we expect revenue to be between $19.6 million and $20 million. We are forecasting an adjusted EBITDA loss of between $3.9 million and $3 million. This adjusted EBITDA guidance assumes estimated stock compensation expense of $0.8 to $1.0 million for the quarter. And we expect a GAAP net loss per share of $0.34 to $0.32 based on approximately 22 million weighted average shares outstanding and we are expecting non-GAAP net loss per share of between $0.31 and $0.27 per share also based on approximately 22 million weighted average shares outstanding.

For full year, we expect revenue to be between $67.1 million and $67.5 million, an increase of $0.8 million at a midpoint reflecting our strong third quarter and continued optimism. We are forecasting an adjusted EBITDA loss of between $9.3 million and $8.5 million and this adjusted EBITDA guidance assumes estimated stock based compensation expense of between $2.2 million and $2.4 million for the full year. We anticipate a GAAP net loss per share of $1.42 to $1.37 based on approximately 14 million weighted average shares outstanding. And on a non-GAAP basis we are forecasting a net loss per share of between $0.93 and $0.89 based on approximately 19 million weighted average shares outstanding.

Finally, after the close of the market today the company filed a Form S-1 registration statement with the SEC related to a potential offering of our common stock. As the SEC has not yet declared this registration statement effective, we cannot discuss any additional details related to a potential offering.

In summary, we are pleased to have delivered results that were above expectations in the third quarter. We believe that our investment are generating increased growth and strengthening our position in the market place.

And with that, I'll ask the operator to please open the call for questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is coming from line of Greg Dunham from Goldman Sachs.

Greg Dunham - Goldman Sachs

Hi, thanks for taking my question. I guess first off I want to hit on the new customer as it doubled from last year. Is there any difference in the profile of customers that you are adding or is there any reasons why we should think that the new customer adds aren’t going to be any different than the kind of customers you have today from a revenue per customer standpoint.

David Spitz

Hey Greg, this is David. Good question, no, I think the overall profile of our customers has been fairly consistent over the quarters, I think what you are seeing is essentially the benefits of the increased marketing and sales activity that we have done over the last several quarters in particular. So I think from a profile perspective or type of customer I think it's fairly consistent.

Greg Dunham - Goldman Sachs

Okay, great and then to follow up. I know that even with the strong performance and from a customer add basis you're probably not a 100% productive when you look at your sales force. Can you remind us where are you in terms of the numbers of sales reps that are kind of up to speed in terms of where you want them to be? That will be I guess the first half and then I have one brief follow up.

David Spitz

Sure. So we don't publish the actual number of sales reps but we have more than doubled the size of our sales, our quota carrying sales team from the beginning of 2012 and obviously that's been a ramp up that's occurred over the intervening quarters and so there are cohorts of reps or elements of the rep population that are more than a year, less than year etcetera and as you may remember it does take about a year for a rep to become fully productive at ChannelAdvisor, so you are absolutely right we certainly have a portion of our sales team that is not fully tendered yet and we would expect them to continue to increase production over time.

Greg Dunham - Goldman Sachs

Okay, great and then I want to shift a little bit bigger picture maybe to Scot and John as well, when I look at the guidance for Q4, 19% kind of quarter-on-quarter growth, it's a little bit slower than what you’ve seen historically going into Q4. I know that you do have a higher mix of fix so that probably explain some of it. But I guess Scot could you address, is there any reason why you think the seasonality, this holiday season should be any different than you had in the past and then I guess I’ll leave it there.

Scot Wingo

Yes, we kind of had a mixed bag from different pontificators out there. We think our guidance is kind of what reflects what we are seeing. I'll let John chime in on some of the details of that.

John Baule

Yes, I think it's a little better than 19% I think on a total basis we had 16 at the end of -- in 2012, Q4 2012 and midpoint of the guidance would be what 19.8 so that will be little higher than that. But I think about 25%, I’m doing It rough, but yes I think that's pretty strong Q4 that we projected.

Greg Dunham - Goldman Sachs

Okay, but no structural changes to think that it should be any different than the norm. Is that fair?

John Baule

No, yes, so.

Operator

Your next question is from the line of Michael Huang, Needham & Company.

Michael Huang - Needham & Company

Thanks very much. A quick couple of questions for you. So first of all, in terms of the recent market place wins like Tesco and MercadoLibre and Best Buy, I was wondering if you could provide a little color kind of around those. Are you the exclusive channel management partner here, were these competitive wins and maybe you could talk about whether or not this has kind of benefited the model yet or at what point in time it starts to hit? Thanks.

David Spitz

Hey Mike, this is David. The relationships we have with our various channel partners vary depending on where the partner is in their own initiatives and the assets that we bring to the table. So there are cases where we have exclusivity and there are cases where we do not. As far as what's driving that I would say it's less about competitive wins per se; we are generally being approached by our partners to significantly accelerate their third party market place efforts and one of the things that we bring to the table that's attractive to the folks in our space is a fairly broad network of high quality retailers, high quality brand manufacturers and therefore a nice network to help these new channel partners expand their third party efforts.

Michael Huang - Needham & Company

Got you. And have these contributed yet to the model yet or at what point in time do this kind of ramp.

David Spitz

Yes, it's a good question. So I think some for example like Sears and Newegg we’ve had for a while and have got some good customer ramp up. I think there is obviously some new ones like Best Buy and Tesco which we've just announced which are very, very early in their lifecycle well that's in terms of number of customers so I think from a materiality perspective you won't necessarily see a direct financial contribution of -- a material contribution in the next few quarters, John may have some highlights there, but obviously we expect these new channel partners and we already seen those are bringing new customers to the table for us and we see an opportunity to further extend our customers on to these new channels. But it's still fairly early days. I think the vast majority of the potential behind these new channel partners lay ahead of us.

Operator

Your next question is from the line of Terry Tillman, Raymond James.

Terry Tillman - Raymond James

Yes, good afternoon guys and nice [stuff] [ph] on the quarter. I guess following up on Michael's question about MercadoLibre, so the technical integration, is that all done, first of all? And then second of all what kind of boots on the ground in terms of sales force do you have so far in that region?

Scot Wingo

I will take the first one part of that Terry. So the integration is live, we do have some beta customers selling to their -- MercadoLibre is pretty exciting; we are launching in Brazil but it covers I believes it's eight of the different countries there in Latin America. And this year there will be over $7 billion in gross merchandize value, the bulk of that comes from Brazil. So it is the largest, it is kind [everyone always] [ph] calls it the eBay of Latin America. So really excited to be working with that team. We’ve known these guys for a while. They are always on the same e-commerce circuit so excited to be working with the team there. They are really good to work with. And I'll let Dave kind of plug you in on some of the tactics there.

David Spitz

Yes, so Terry one thing we found over the years is that there is no substitute for having again what I call boots on the ground in the various geographies that we serve. So we did open an office in Sao Paulo as I mentioned. We do have sales staff on the ground there today. We expect to expand that in the future. We also would expect over time to add services components not just from a language perspective but also just too really get to know the market and work more closely with our customers. So it's early innings there, it's a small office but expect to continue the investment there.

Terry Tillman - Raymond James

Okay, and I guess David one thing on the customer success team, I know you talked about that in the past and you have seen some good early traction, could you give us an update may be what you saw in the quarter in terms of any monetization of the investments there and expanding your customer success team and how to pick up that over the next couple of quarters.

David Spitz

Yes, that is an area that I have been very pleased with and continued to be pleased with. In fact, we have continued to ramp our investments and our customer success team to not only make sure that our customers on board successfully but then continue to enjoy a good competitive vantage in the market is really the metric we look for in terms of GMV [Gross Merchandise Volume] growth relative to the market and their category etcetera. So that continuous to be an area that has benefited us. We publish as part of our numbers, our subscription dollar retention rate and but one thing that we've definitely seen qualitatively there is increased success with customers, faster time to GMV or gross sales is an example. So that's an area where I would expect we continue to make sales because we think that investment pays for itself several times over in the long run.

Terry Tillman - Raymond James

I guess my last question just relates to just browsing through the 10-Q that you all filed, there is an increase you’re talking in the MD&A section around the revenue topic, increase in fees in [indiscernible] both the fixed and variable portion of your customer relationship. I guess could you give any quantification or commentary on what's going on with that? Thanks again.

John Baule

I think that just explain the trend in increases in average revenue per customer over time and one of the reason is because of over time historically increases in fees and the other piece is just an increase in GMV that goes through there - and individual customers. If I had to pick I would say more of it was GMV related and particularly in the third quarter.

Terry Tillman - Raymond James

But I guess John in terms like going forward in the fourth quarter - maybe you - what sort of assumption around the fees, do you grow that or do you keep that kind of more constant?

John Baule

It's a good question. I mean we have always said we sort of like revenue either way, through new customers or through average revenue per customer. You would expect in the fourth quarter that tends to be seasonally a good quarter for retailers so you might expect more revenue per customer in that relative to adding new customers.

Operator

Your next question comes from the line of Brad Reback from Stifel.

Brad Reback - Stifel

Hey, guys, how are you? So just going back to the sales success that you guys are having have you seen any improvement in conversion rates or it's just fairly purely a function of adding more headcount?

David Spitz

Brad, this is David. Good question. I would say our conversion rates are fairly consistent with historical levels. I do think what are you are seeing is a little bit more activity at the top of funnel both because of marketing investments and some of these channel partners really working closely with us to drive new names into our marketing and sales funnel. But if you look across our sales team on a fully blended basis of course we are adding new sales people to the mix that are not tenured as I mentioned earlier. So as a kind of fully weighted basis I think what you would see is a pretty consistent conversion rate across the sales organization. I would expect as more and more reps come to reach full productivity that that's a point in time in the future we might see improvements in conversion. But today it's pretty consistent with historical levels.

Brad Reback - Stifel

Great, one follow up. I am not sure if I missed this. Did you guys talked to your retention rates either on a dollar or unit basis in the quarter?

John Baule

No. We don't disclose that –other than to say the subscription dollar retention rate is shown on our S-1 and it exceeded 100% but we don't go above that.

Operator

Your next question is from the line of Chad Bartley, Pacific Crest.

Chad Bartley - Pacific Crest

Hi, thanks for taking the question. Two quick ones. I wanted to ask if there was any one time or project related revenue in Q3. I think you had some of that in the second quarter. And then as you think about Q4 guidance, I believe that it implies a slight slow down on a year-over-year basis. Scot you talked about some mixed outlooks by other companies in the space, so can you give us any more color, any more context in how you guys are thinking about the holiday outlook.

John Baule

I will take the first one. I forget what I was going to say, I was looking at - the first question again was Chad?

Chad Bartley - Pacific Crest

First question, just a housekeeping question. Was there any one time or project oriented…

John Baule

Sorry, yeah, okay. No, we didn't have anything material one time in the third quarter. During the second quarter we had that one fairly large integration that accounted for about 250 basis points of growth but nothing like that in Q3.

Scot Wingo

And as far as the holiday you have eMarketer and Forrester out there kind of saying 15 percent-ish, comScore hasn’t updated their holiday since they came out with Q3 at 13.2%. I think that 13.2% gets a little over played in the media because it's desk top only and we are seeing a lot of folks as I mentioned one of the waves we are seeing is mobile. So I feel I think we are - you see us [winching] [ph] our fourth quarter up a little bit here and we feel pretty good and that’s the best view that we have right now.

Operator

At this time, I am showing no further questions. Thank you. I would like to turn the conference back over to Mr. Scot Wingo for any closing remarks.

Scot Wingo

Thanks everyone for joining us for our third quarter conference call. We believe with the Autumn Release and results of this quarter we are better positioned than ever, ahead of the seasonally strong quarter for the year. I want to close by reminding everyone of our Catalyst Conference dates for next year. In the United States it will be at the Wynn Las Vegas, March 10 to 12, in Europe it will be in London at the Hilton Metropole Hotel, April 10. The theme of our catalyst events in 2014 will be e-commerce accelerated. And we hope to see you there. Thanks for joining the call today and be sure to do all your holiday shopping online this year. Thank you.

Operator

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.

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