ChannelAdvisor's (ECOM) CEO David Spitz on Q4 2015 Results - Earnings Call Transcript

| About: ChannelAdvisor Corp (ECOM)

ChannelAdvisor Corporation (NYSE:ECOM)

Q4 2015 Results Earnings Conference Call

February 04, 2016 04:30 PM ET

Executives

Garo Toomajanian - IR

David Spitz - CEO

Mark Cook - CFO

Analysts

Michael Huang - Needham & Company

Justin Furby - William Blair and Company

Trevor Upton - Pacific Crest Securities

Ben Kallo - Robert W Baird

Brad Reback - Stifel

Craig Nankervis - First Analysis

Operator

Good day, ladies and gentlemen. And welcome to the ChannelAdvisor Fourth Quarter and Full Year 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today’s program maybe recorded.

I’d now like to introduce your host for today’s program, Garo Toomajanian, Investor Relations. Please go ahead.

Garo Toomajanian

Thank you. Good afternoon and welcome to ChannelAdvisor’s conference call for the fourth quarter of 2015. My name is Garo Toomajanian and with me on the call today are David Spitz, ChannelAdvisor’s Chief Executive Officer; and Mark Cook, ChannelAdvisor’s Chief Financial Officer.

After the market closed today, we issued a press release with details on our fourth quarter performance as well as our outlook for the first quarter and full year 2016. This press release can be accessed on the Investor Relations’ section of our website at ir.channeladvisor.com. In addition, this call is being recorded, and a replay will be available after the conclusion of the call.

During today’s call, we will make statements related to our business that may be considered forward-looking under Federal Securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. These risks are summarized in the press release that we issued today. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our most recent Form 10-K or Form 10-Q 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 including adjusted EBITDA, which excludes depreciation, amortization, income tax expense, interest and stock-based compensation expense as well as onetime costs related to our headquarters relocation, severance and acquisitions. A reconciliation of all non-GAAP measures to the most comparable GAAP measure is included in our press release.

Finally, at times in our prepared comments or responses to your questions, we my 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 information in the future.

With that, let me turn the call over to David for his prepared remarks. David?

David Spitz

Thank you, Garo. And welcome to those of you joining our call today. We had an exceptional fourth quarter exceeding the top end of all our guidance metrics as the improvements we saw in our execution during the past few quarters were even stronger in the fourth quarter.

During the fourth quarter, our customers drove over 22% increase in GMV on our platform from a year ago, processing over $1 million in GMV on average every hour of everyday throughout the entire quarter, a testament to the scale and value we provide our customer worldwide. Our system handled this without a blip, thanks to the incredible talent of our engineering, operations and services teams. The strong growth in GMV also helped to produce very strong fourth quarter revenue performance for us at over $29.4 million, up 25% year-over-year on a constant currency basis, representing our fastest growth rate in over a year. Our strong fourth quarter revenue also means we crossed the major milestone for the full year with over 100 million in revenue.

On a full year basis, our GMV increased 20%, reaching over $6.8 billion, which would rank us number five on the most recent Internet Retailer 500 list, if we were online retailer. All-in-all, our growth has helped us scale to a level that we believe is unmatched by our competitors and further solidifies our global leadership position.

I’m also very pleased to report that this revenue growth did not come at the expense of profits or cash flow. We again demonstrated the inherent leverage in our model, producing record adjusted EBITDA of $5.4 million and positive operating cash flow of $3.5 million for the quarter while continuing to invest in our long-term opportunity. Our fourth quarter profitability is also strong enough to make adjusted EBITDA positive for the full year as well at $1.4 million.

Underlying our strong performance in the fourth quarter was a pronounced acceleration in variable revenue growth over the course of the year with variable revenue up 32% in the fourth quarter year-over-year. This growth was driven by several factors. First, we saw a generally strong GMV growth across our platform, driven in part by continued share gains by Amazon, now our largest single channel. Second, improvements to our pricing policies implemented during 2015 led to more balanced alignment between GMV growth for our customers and revenue growth for us, in contrast to the fourth quarter 2014. Third, we witnessed strong growth across some of the emerging marketplaces that have joined our platform recently. Fourth, our gradual shift towards larger retailers and branded manufacturers positions us to better capture GMV from customer segments that we believe will continue to experience share gains in ecommerce. In other words, the strategy and initiatives that we executed in 2015 were successful. In keeping with our strategy of focusing on larger retailers and branded manufactures where we can deliver greater value, we finished 2015 with 2,898 customers, a decrease of 12 from the third quarter, as we deemphasized the acquisition of smaller customers.

As a remainder, our smallest 1,000 customers by revenue accounted for a single-digit percentage of our revenue 6% in the fourth quarter specifically, down from 7% in the third quarter. In contrast, our top 100 customers accounted for 29% revenue in fourth quarter up from 26% in the third quarter. Please note that this mix may fluctuate due to seasonality, and we do not intend to provide it on a regular basis, but we are sharing it to demonstrate our success in focusing on larger customers.

Our average revenue per customer calculated on a trailing 12-month basis, climbed to over $34,500 in the fourth quarter, up 10% compared to the year ago period, the fastest growth rate we’ve seen in this metric since 2013. Some of the great brands who partnered with us in the fourth quarter include Birchbox, LuckyVitamin, Diageo, PFSweb, Indochino Apparel and Johnson & Johnson.

Last year, we introduced the metric we call net bookings as a percentage of trialing 12-month revenue, which I’ll simply refer to as net bookings and suggest that we would share it annually. As a remainder, this metric nets our gross dollar booking as measured by annual contract value offset by revenue churn from lost customers and is expressed as a percentage of trailing 12-month revenue. This metric has been a reasonable directional indicator of future revenue growth, although by no means of guarantee and we encourage investors to consider it in the context of our guidance, which Mark will detail shortly.

For the full year 2015, our net bookings were approximately 14% of revenue. This is lower than 2014 and we believe the decrease reflects the restructuring of our sales team earlier in 2015, which included a modest reduction in the size of our sales force, specifically focused on smaller customers as well as increased scrutiny on prospect qualification and the gradual transition we are making towards larger customers. Although this implies near term revenue growth is more likely to be below what we believe our long term potential to be, we believe the improved unit economics and overall profitability of the customers we are acquiring is demonstrated by our performance in the back half of 2015, Q4 in particular. And we remain confident that our strategy is the right one.

Maximizing revenue growth remains our top priority within the context of running the business on at least roughly breakeven adjusted EBITDA basis. To help drive our future growth, we made significant investments in our enterprise sales force in the fourth quarter, adding a whole new team dedicated to specifically the branded manufacturers. We had originally planned to build this team throughout 2016, but felt confident enough in the potential of this market segment and our pipeline, and we decided to pull all of this hiring into the fourth quarter and hit the ground running in 2016. I am very excited to see what this team can deliver for us this year.

2015 was the transition year for us. And if I look back, I am very pleased we were able to execute on our strategy, leading us to deliver better than expected results and a very strong finish to the year. Our ability to maintain the strong revenue growth while making dramatic improvements to profitability and cash flow are testament to the hard work and dedication of our team, and I am incredibly proud of and thankful to them for these results.

Naturally, we have more work ahead of us, but I look to 2016 with confidence and conviction and I am excited about momentum.

Before passing the call over to Mark, I wanted to note that we look forward to seeing many of customers and strategic partners at our annual Catalyst show, the week of April 11th, in Las Vegas and on April 20th, in London where this year’s theme is E-Commerce: Future-Proofed. As change in ecommerce landscape continues to accelerate, you cannot afford to miss it.

Now, let me turn the call over to Mark for more details on our financial performance.

Mark Cook

Thanks David. I’ll now provide additional color on our fourth quarter financial performance and our guidance for the first quarter and full year 2016.

As David has said, we saw stronger execution on the part of our ChannelAdvisor team during the past few quarters and an exceptional fourth quarter. This execution resulted in a strong revenue growth, profitability and cash flow for the fourth quarter.

Revenue in the fourth quarter was $29.4 million, an increase of 25% in constant currency and 24% in U.S. dollars over the fourth quarter 2014. Fourth quarter revenue exceeded the high-end of our guidance range with over-performance primarily from the strong growth in variable subscription revenue. Revenue from outside the United State was over 21% of our total revenues in the fourth quarter, a slight decrease from 22% of total revenue a year ago, primarily as a result of the stronger dollar. On a U.S. dollar basis, Q4 revenue from outside of the United States increased 20% year-over-year.

Consistent with historical seasonal patterns, the fourth quarter was our strongest quarter of the year in terms of variable subscription revenue. With our focus on larger customers, pricing and qualification of customers, variable revenue represents 31% of total revenue, the highest level since the end of 2013, and fixed revenue was 69% of revenue. At $9.2 million, variable revenue increased 32% compared with $7 million a year ago. Despite this seasonal shift in mix to 2016 variable in terms of dollars, our fixed subscription revenue also increased over 20% from Q4 of last year.

Now, turning attention to the full fiscal year. Revenue for the year 2015 grew to $100.6 million in revenue, an increase of over 21% year-over-year in constant currency or up 18% in U.S. dollars. Full year 2015 revenue also exceeded the high end of our guidance range. Revenue from outside of the United States for the full year was 23% of our revenue, consistent with 2014.

Fixed revenue for full year 2015 represents 76% of total revenue, up from 74% a year ago. Variable revenue of $24.4 million increased $2.6 million or 12% compared to $2.1 million a year ago. We believe these results demonstrate the success of our improvements we made in pricing practices and most importantly, the value that we deliver to our customers.

Now, moving to the expense side of the P&L. My comments regarding expenses will be only non-GAAP basis and all comparisons would be on a year-on-year basis unless otherwise specified. Our press release includes a GAAP to non-GAAP reconciliation. Both the fourth quarter and full year fiscal 2015 reflect the benefit of our strategic realignment initiated in the second quarter of 2015. Beginning with fourth quarter 2015, gross profit increased 28% to $22.7 million from $17.8 million a year ago. As a result, our gross margin expanded almost 300 basis points to 78%. Gross margins strengthened in the quarter was driven primarily by strong higher margin variable subscription revenue.

Operating expenses for the fourth quarter 2015 were down 5% from a year ago. We continued to invest in our long-term growth and in the first quarter we expect to see the full expense impact of recent enterprise sales hiring that David has mentioned earlier. Fourth quarter non-GAAP operating income of $2.9 million increased $6.1 million over an operating loss of $3.2 million a year ago. Our non-GAAP operating margin for Q4 2015 was 9.8% as a result.

The combination of variable revenue growth, healthy gross margin and lower operating expenses resulted in an adjusted EBITDA of positive $5.4 million for the fourth quarter in 2015, well ahead of our guidance and a meaningful increase from an adjusted EBITDA loss of $1.5 million a year ago. The same factors driving our strong EBITDA performance also produced a better than expected fourth quarter non-GAAP net income of $3 million or $0.11 per diluted share. This represents an improvement of $6.4 million from our non-GAAP net loss of $3.4 million or $0.14 per share for the fourth quarter a year ago.

Now, moving to the full year 2015. Gross margin expanded to over 75%, meeting our long-term target model of 75% and an increase of 300 basis points over full year 2014. While our gross margin met our long-term target model of 2015, I want to emphasize that we plan to continue to make additional investments to support the scaling of our business and as a result quarterly margins in short term could dip below our long-term target level.

Operating expenses for the full year 2015 were down 4% from the year ago, again reflecting the benefits of our strategic realignment implemented in the second quarter of 2015. We significantly reduced our full year 2015 non-GAAP operating loss by 70% to a loss of $7.6 million from a loss of $25.5 million for 2014, reflecting significant improvement in operating efficiency.

Full year adjusted EBITDA for 2015 was positive at $1.4 million, again well ahead of our guidance and significantly improved from our adjusted EBITDA loss of $19.5 million for 2014. Non-GAAP net loss for the full year was $7.3 million or $0.29 per share, representing an improvement of $18.7 from our non-GAAP net loss of $26 million or 1.06 per share in 2014.

Now, turning to our balance sheet, our cash position strengthened during the quarter, ending with $60.5 million in cash and cash equivalents as of December 31, 2015, an increase of $1.5 million from the end of the third quarter balance of $59 million due primarily to positive operating cash flow of $3.4 million in the fourth quarter. The increase in cash during the fourth quarter would have actually been higher but if not for approximately $1.1 million in connection with the relocation of our corporate headquarters, including costs incurred to terminate our prior lease. Compared to year-end 2014, cash and equivalent decreased by $7.9 million from $68.4 million. For the full year of 2015 operating cash flow was negative $1.5 million, a significant improvement compared to the negative $21.5 million in 2014.

Now, I’ll turn to the FY2016 guidance. And I’ll start with a remainder that as we indicated in prior calls, we expect the rate of revenue growth to slow modestly in the near-term before accelerating. We have anticipated this as natural result of our 2015 strategic sales realignment, pricing and prospect qualification changes, and our subscription revenue model. These effects are reflected in our 2016 revenue guidance. At the same time, we intended to continue investing in our long term growth but with the framework delivering neutral to positive adjusted EBITDA on a full year basis. Therefore, for the full year 2016, we expect revenue to be in the range $111 million to $113 million. This represents revenue growth of 10% to 12% from 2015 and includes the impact of a foreign currency exchange headwind of approximately 100 basis points.

As David indicated, we expect revenue growth to improve over time as our new enterprise sales team gains traction and as we start to see churn levels improve, as result of the shift in focus to larger customers.

From a profitability perspective, we anticipate an adjusted EBITDA of between breakeven and $3 million for the year. This reflects our goal of continuing to investing our business for generating at least breakeven adjusted EBITDA. For the first quarter of 2016, we are anticipating revenue of $24.6 million to $25 million as we expect to see continued momentum from our focus on largely, more profitable retailers and brands.

We expect first quarter 2016 revenues to decline sequentially, reflecting the normal seasonal shift in revenue mix toward more fixed revenue, as a percentage of total revenue. This seasonal shift is a little more pronounced after coming off a fourth quarter having exceptional variable revenue growth. Therefore, from a margin perspective, we expect to see a sequential decline as we have historically in first quarter. At the same time, we intend to continue to strategically investment in the business primarily in areas that can support our long-term growth including key enterprise sales and account managers. We also experienced the full effect of the new hires made in the fourth quarter and with that in mind the first quarter 2016, we expect adjusted EBITDA loss of between $2.5 million and $1.5 million.

In summary, we delivered a very strong fourth quarter, which we believe reflects the progress we made during the transition year. We believe we are well-positioned to continue to build on this momentum in 2016 and beyond, as we continue to work to scale our business and deliver our goal of profitable growth over the longer term.

With that operator, we would like to now open the call to questions. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator instruction]. Our first question comes from the line of Michael Huang from Needham & Company. Your question please.

Michael Huang

Couple of questions for you guys. First of all, as I am looking at the 2016 guidance, I was wondering underlying that what’s some of your key assumptions might be, around existing and new business with respect the close rates or the macro or competition or any other factor. I was wondering is there anything that you are more conservative around going into this year versus going into last year?

David Spitz

Hey Mike, this is Dave. I’ll start and Mark may have some stuff to add. I mean I think from a market perspective and a competitive landscape perspective, I feel pretty good. I feel better than I have in a long time about our position in the market. I think some of what you’re seeing in the guide is a reflection of some of the changes we made last year, really restricted certain segment of the pipeline around smaller customers, changed some pricing policies and began to focus on larger customers. But without necessarily backfilling is as aggressively on the lower end of the customer spectrum as we might have previously so. And those changes, as you know, in a subscription model take a little bit of time to work through the model. We obviously had a really, really strong Q4, a pretty good chunk of that was variable. We have to discount variable revenue in terms of projections more than you with subscription revenue. And I don’t know that the strength that we saw, especially in the back half of last year on variable revenue is something that we would necessarily project as continuing into this year. But I feel very good about the team that we’ve got in place, the enterprise team where we got the deals that we are closing on the brands and larger retailers. So, I think we are well positioned.

Michael Huang

So, with respect to kind of the enterprise business and I don’t know if you can talk -- speak qualitatively to this but how did you guys do from a booking standpoint relative to your expectations in Q4? I know that Q3 was really a strong quarter from a booking standpoint. I was wondering if you could just provide a little color on kind of what you saw in Q4 and whether or not you are seeing that kind of area do alright?

David Spitz

I was reasonably pleased with enterprise performance as it relates to bookings. It was -- I’ll just say qualitatively, it was down sequentially from Q3. I think Q3, number one, was so strong; and number two, Q4 is always the slower -- almost always a slower quarter for us from a bookings perspective. Our customers are pretty head down during the holiday season, so it’s not uncommon to see a tick down modestly from Q3 to Q4. But I have a lot of confidence in the pipeline and the team. As I mentioned on the call, we had an original plan that we have been working on to hire a dedicated brands team in our enterprise segment in 2016. And as we saw the strength of the pipeline build and some of the results that we were seeing there, we decided to pull all of the hiring into the fourth quarter, which we did. And it’s not something we would have done if we didn’t have a good feeling about the success we were having as always the pipeline and the opportunity for new business along the way.

Michael Huang

Great. And maybe a final one for you guys, I think in your prepared commentary you talked about some of the emerging areas doing pretty well. I was wondering if you just could call out kind of what some of these were and maybe kind of shed a little color on that. Thanks.

David Spitz

Yes, sure. So, I continue to be pleased with our progress in China is one good example. That’s been a strong success story for us and continue to expect to see us invest there. I also mentioned the third-party marketplaces beyond sort of the large ones that we work with had a strong Q4. And that overall program that we’ve got, turning that program out, be an API to new integrations I am also pretty bullish on. So, we’re seeing a nice rounding out I guess I would say of GMV and points of consumer demand that we’re connecting our customers through this third-party marketplace program. So that was the strong area. And I think in general, we continue to believe that share of wallet will continue to gradually migrate towards larger retailers and brands. And I think our -- it’s early but I think the focus on that started to show up in our Q4 results where, if you look at the share shift of GMV, and I think we did a good job in terms of pricing discipline, all showed up in strong -- we had faster growth in GMV in Q4 than we did for the full year. So, I told you something about the trajectory. And I think a lot of that’s just the quality of customer that we’ve got. So, I feel pretty good about how we stand today.

Operator

Thank you. Our next question comes from the line of Justin Furby from William Blair and Company. Your question, please.

Justin Furby

Hey, guys, congrats and nice to see certain things around. David, as you are working your way through things the last several quarters, just curious to your latest thoughts on the longer term growth rate of the business. And I guess is that relying to new products or just continuing to participate in the marketplace shift? And I’ve got a couple of follow-ups. Thanks.

David Spitz

I believe this business can grow significantly faster than the rate of ecommerce. I’m confident that we have the assets and the team to do that. And I think we can do that in a financially discipline way, as we have outlined. So, I don’t know believe that it requires significant new products. I think our focus on market segment is important. I’m a big delivery in the opportunity with branded manufacturers, as we talked about before. But I think our existing product line is well-suited. Now obviously, we continue to invest substantially in R&D; we continue to invest in our platform, so they are not standing still by any means. We have a whole roadmap that we’ve identified for our brands platform that we’ve allocated and hire engineering team to this year. We’ve got a lot on the docket from a road map perspective on marketplaces and digital marketing, all of the other things that we work on. So, our platform is constantly evolving, constantly picking up new capabilities. But I feel comfortable that as a business, we ought to be able to grow, like I said, significantly faster than ecommerce and do it in a manner that those show incremental progress over time on the bottom line in terms of profitability.

Justin Furby

And then the branded manufacturers, can you elaborate where is the biggest opportunity in terms of digital marketing, in terms of the acquisition you made, I don’t four, five quarters ago, or where is the most -- if you look over the next year to year and half, where you are going to be selling to those guys, if anything?

David Spitz

I would start with the acquisition we made of a company called E-Tale, which is a Where to Buy solution. What we find in the market is that many, many brands are a lot like retailers where maybe 15 years ago as it relates to ecommerce, they have maybe dabbled in it or -- they very often they don’t have a substantial ecommerce presence; they may not even sale at all direct to consumer. And this was the reason we did the acquisition because prior to the acquisition we --somebody wasn’t doing direct-to-consumer or selling on a marketplace, there was a bunch we could offer them. Now with Where to Buy, we are able to offer a solution that even if a branded manufacture isn’t conducting transactions on their website, they can certainly -- and they want direct-to-consumer traffic to their authorized retail partners and do it in a sophisticated way so that they can manage that traffic.

Now, to be very clear to us that step one, there is a whole suite -- a whole roadmap, as I mentioned of capabilities that these manufacturers are talking to us about, like I mentioned J&J during my prepared remarks, obviously a fantastic global brand. And what we are hearing from customers like J&J and others is there is a larger amount of stuff that they would like to help on throughout his entire lifecycle of leveraging ecommerce more. So, I think as time passes, you’ll see more and more emphasis put on that element of our platform and then ultimately we would expect more and more brands to be able to passing to the full power of our platform like some of our long standing customers do.

Operator

Thank you. Our next question comes from the line of Brad Reback from Stifel. Your question please? You might have your phone on mute. Mr. Reback, we are not hearing you at this time. Alright, we will move on to the next question; you might want to requeue. Our next question comes from the line of Brendan Barnicle from Pacific Crest Securities. Your question please.

Trevor Upton

Hi, thanks so much. This Trevor Upton on for Brenden. Last quarter, you gave some numbers on the $100,000 customers, both additions and income total customers, do you have an update for Q4?

Mark Cook

No, not this quarter we don’t, though we did have some at $100,000. That’s correct.

Trevor Upton

And then where are we in the transition, so larger and more probably customers? As revenue growth slows, are you expecting a bottom in the first half in 2016, is any color you can give on that?

Mark Cook

We are not actually predicting an exact date or quarter for that transition. I mean those customers I think we may have discussed in the past tend to have a life at least one of year than it’s probably in the second year that would tend to terminate or that might roll off and all of them actually roll off, me of them still renewed. And if you recall, we have actually initiated some of the changes, I think it was Q2 2015. So if you think about that they would at least have life through no less than probably Q2 2016 at a minimum.

David Spitz

One thing I would add to that is we did see a sequentially improvement in churns for the full year 2015 compared to 2014. So, I think if you look at that and you look at that in concert with the strength of our performance in Q4, I think it’s the clear indication that we are moving in the right direction.

Trevor Upton

Okay, is that dollar churn?

David Spitz

Correct.

Trevor Upton

Okay, thanks. And then just last question, you have mentioned jet.com specifically last, I was wondering how that’s performing relative to your expectations?

David Spitz

Yes, Jet came out of the gate really strong, we published a blog post, I guess it was last -- late last Q3 or maybe early Q4. I think they have done a fantastic job driving volume for our customers. I’m not going to comment specifically on the performance for the quarter, because I don’t have any numbers in front of me. But we continue to think that they represent a strong opportunity for a large number of retailers to gain expanded reach to more consumers.

Operator

Thank you. Our next question comes from the line of Colin Sebastian from Robert W Baird. Your question please.

Ben Kallo

Hi, it’s actually Ben on for Colin. Just piggybacking off of the China question earlier. So, far to the start of this year, have you guys seen any impact on cross border transactions, given some of the China macro weakness? And specifically on the competitive landscape, have you seen some of the competitors in the SMB space like Shopify encroach on the lower part of the customer business. I’ll leave it there?

David Spitz

As it relates to China, no, I haven’t any particular impact on GMV flows. But let me make a very important point and remind you that the vast majority of our business in China is helping sellers and manufacturers export from China into the U.S. and into Europe. So really what we would primarily seeing is still demand from western countries. And I don’t know that we would necessarily be a good proxy for anything related to the Chinese consumer, if that’s what you are asking. Obviously, we continue to see strength in the business overall. So from our perspective, as it relates at least to exporters that we work with, business still seems quite strong.

Moving on to competitors, I actually think our competitive position is better than it’s being in a long, long time. We consider Shopify more of a partner; we work with them and have a number of joint customers. I know that they’ve talked about federated commerce and some other opportunities that they are working on but I think scale and sophistication of our platform is really unmatched out in the market. We also see a number of private smaller competitors frankly struggling to achieve scale. And as you’ve seen in the markets, whether it’s just the lack of liquidity from an IPO perspective, we see a lot of that just going back to the private markets and smaller competitors struggling to capitalize their businesses. So, we’ve seen an uptick in interest of competitors that are potentially looking for a home. We like this environment; we are generating cash; we have a strong balance sheet; we have a very strong business model that’s working well. And we intend to operate aggressively and play offense in this kind of environment. It’s the kind of environment we like.

Operator

Thank you. And Brad Reback from Stifel has rejoined the queue. Your line is open.

Brad Reback

Great. Can you hear me this time? Perfect, thanks. So David, I’m not sure if I missed this before to an earlier question but with your 2016 guide, can you give us a sense of the expectation around customer count being flat, down, up, something directionally?

David Spitz

That’s a great question. We don’t include customer count projections in our guidance, as you know. I guess what I would say is that it’s not a metric that as a management team we focus on. I would point you to the stat that we shared again in our prepared remarks this time about the fact that our bottom 1,000 customers were 6% of revenue. So, for us, it’s really about quality of customer, LTV lifetime value and obviously having an attractive LTV, the customer acquisition cost ratio. So, at the end of the day if that means the customer count continues to go down incrementally or stay flat or pick up is not something I spend a lot of time focusing on. Obviously over time, as we go through this transition and I would expect and hope that customer count starts to climb again, but it’s not my primary focus for 2016.

Brad Reback

Great. And just on the sales ramp in 4Q. Can you give us a sense as how long it will take these new hires to get fully productive?

David Spitz

I think what we’ve seen historically is that it takes 9 to 12 months for a sales rep to get fully productive. Some of these folks were folks who actually moved from our retail side to our brand side and then backfilled on the retail side. So, obviously they are very well versed in business; they have to learn a little bit on the brand side but I expect them to become very productive. And then of course we hired a number of folks that are new to the business and it’ll take them a little bit longer. I will point out though that one of the metrics we track here is the number of sales reps that are tenured over 24 months and that’s actually the largest number. We’ve got more of those now than we’ve had at any point in the history. And if you go back to our restructuring last year, obviously that was focused on reps, focused on smaller customers that you can imagine that the mix of 24-month reps that are enterprise focused is also an attractive number. So, it will take some time to them to ramp, there is no doubt about it. But we do have existing reps who have been selling into the segment and I expect that these guys are going to have some pretty good successful this year.

Operator

Thank you. Our next question comes from the line of Craig Nankervis from First Analysis. Your question, please?

Craig Nankervis

Thanks. I’d also echo the congratulations on a great quarter. Is there any color you can provide on the remix that helps you so on the variable revenue is there any granularity you can offer?

David Spitz

Hey, Craig. This is David. Thanks for the comment. I think it’s a combination of things. I think number one, the pricing changes and policy changes that we made during the early part of 2015 clearly had an impact. It was a much better balance, I think in terms of avoiding volume discounting and better aligning customer GMV growth with our revenue growth and sharing that upside with our customers. So, I think that was probably the most significant benefit that we had. And I feel good about that. Part of it could be that that we now annualize some of eBay slowdown. So we continue to expect that eBay will not be a significant growth driver for us over time and as that becomes smaller and smaller part of our business, hopefully we will get a little bit of benefit of Amazon which is obviously a much faster growing channel partner. So, I think those were predominant things. And then I would say qualitatively, the quality of the bookings that we did in 2015 in terms of the quality of customer, size of customer and the likelihood of those customers to thrive in an ecommerce landscape were also things that contributed to our strong return of variable revenue in Q4.

Craig Nankervis

And was their -- so a year ago, two, there was this, if I recall correctly, there was this concentration of larger customers who promoted more and then had greater volume. Was that the essence of it? If I have that right, so that slacked off this time, at least sounds like, relatively speaking -- is there any comment about that kind of behavior versus the year ago behavior?

David Spitz

It’s not uncommon in Q4 to see some of the larger folks that are better capitalized, spend more on promotions, spend more to drive topline. So, from my perspective, without giving any kind of detailed breakdown, I would expect that there was some share shift in Q4 as is not atypical in Q4. I think what’s different this time around is I think we and more pricing discipline, and as I said earlier, better alignment between GMV growth and revenue growth. So I just think we were better positioned this Q4 in that regard than we were last Q4.

Craig Nankervis

And then, did you comment on Q4 churn specifically? If you did, I didn’t -- I miss that.

David Spitz

I didn’t comment on Q4 specifically, what I said is that revenue churn as percentage of revenue, we saw sequential improvement from 2014 full year to 2015 full year.

Operator

Thank you. This does conclude the question and answer session of today’s program. I would like to hand the program back to David Spitz for any further remarks.

David Spitz

Thank you everyone. We look forward to speaking with you in the near future.

Operator

Thank you ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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