Amber Road, Inc. (AMBR) CEO Jim Preuninger on Q4 2018 Results - Earnings Call Transcript

Amber Road, Inc. (NYSE:AMBR) Q4 2018 Earnings Conference Call February 11, 2019 5:00 PM ET

Company Participants

Kevin Brogan - IR

Jim Preuninger - CEO

Tom Conway - CFO

Conference Call Participants

Scott Berg - Needham & Company

Tom Roderick - Stifel

Glenn Mattson - Ladenburg

Jason Celino - KeyBanc Capital Markets

Operator

Good day and welcome to the Amber Road Fourth Quarter and Full-Year Conference Call. Today’s conference is being recorded.

At this time, I’d like to turn the call over to Kevin Brogan, Investor Relations. Please go ahead.

Kevin Brogan

Thank you, operator, and thank you for joining us on Amber Road’s fourth quarter 2018 earnings conference call. As a reminder, today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available on our website following the call. By now, you should have received a copy of our press release that was distributed this afternoon. If you have not, it is available on the Investor Relations section of our website.

Before we begin, I would like to remind you that during today’s call, we will be making forward-looking statements regarding future events and financial performance, including growth from our bookings and sales pipeline, client deployments, continued product demand and our guidance for our fourth quarter and full year fiscal 2019. We caution you that such statements reflect our best judgment based on factors currently known to us and that the actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, in particular, our Form 10-K, 10-Q and our Form 8-K filed today with our press release. These documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements.

Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. We disclaim any obligation to update or revise any forward-looking statements. We will provide guidance on today’s call, but we will not provide any further guidance or updates on our performance during the quarter, unless we do so in a public forum.

I would also like to inform you that Amber Road, its directors and current executive officers may begin to be participants in the solicitation of practice from our shareholders in connection with our 2019 Annual Meeting of Shareholders which is scheduled for Tuesday May 7th. We intend to file our proxy statement and related proxy materials with the SEC in connection with any solicitation or proxy from our shareholders in connection with the 2019 annual meeting. Shareholders with Amber Road are strongly encouraged to read such proxy statements and all other related materials filed with the SEC carefully and in their entirety when they become available, as they will contain important information about the 2019 annual meeting. We will not comment on any proxy contest or take any questions regarding any proxy content in this call.

During the call, we will also discuss our non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the GAAP and non-GAAP results is provided in today’s press release. The projections that we provide today exclude stock-based compensation, which cannot be determined at this time and are, therefore, not reconciled in today’s press release.

With that, I will turn the call over to our CEO, Jim Preuninger. Jim?

Jim Preuninger

Thank you, Kevin. I'm very pleased with our results for 2018. When I look back, our full year revenue for 2018 was in line with the original guidance given one year ago, and we beat our operating loss guidance by more than $5 million posting a non-GAAP operating profit for the year. We also performed very well against our quarterly guidance in 2018 as we came in at or at the high-end or exceeded our guidance range in each and every quarter.

2018 also marked the firm's transformation to generating consistent and meaningful levels of profit and cash flow. This journey began at the end of 2015 when our shareholders talked to us about returning the Company to profitability. In that year, we had an adjusted EBITDA loss of 10.5 million and burned 13.2 million in cash from operations. In 2017, we improved to breakeven adjusted EBITDA with only a $670,000 cash burn.

Today, I'm happy to report that we delivered adjusted EBITDA of $5.4 million, yielding a margin of 6.3%, and we generated 3.3 million in cash flow from operations. Our profit trend line has continued to improve. We have delivered on our profitability growth goals by creating a business that is financially strong with improving levels of profit and cash flow.

We believe in 2019 and beyond, we can continue to deliver against these key metrics by taking advantage of opportunities in global trade, bring more focus to our sales and marketing efforts, drive expansion in the new markets and return subscription revenue growth to double-digit levels.

Turning to our results for the fourth quarter revenue and profit exceeded the high end of our guidance driven by the strength in subscription revenue and improved subscription growth rates. Total revenue was 21.9 million as subscription revenue increased 9% year-over-year to 16.3 million.

Adjusted EBITDA for the quarter was 1.6 million. Bookings for the year ended on a strong note, including improved performance from Europe. Our sales pipeline is balanced across the geographies and products we sell and at a higher level than this time last year. These things combined to position us very nicely for 2019.

We have reorganized Amber Road's staff and focused on our go-to-market programs around several key strategic objectives, which will drive our business forward in 2019 and beyond. I'll review a few of these enhancements with you next. We are helping our customers to manage the increasing complexity and velocity of changes in global trade, much of which is driven by the U.S. trade wars, Brexit and an acceleration of new free trade agreements.

Our end markets are healthy, and we believe we are more efficient and more affect -- there are more efficient and effective ways to add new customers and expand across our blue-chip customer base. To do this, we are increasing our focus on a few key areas related to sales and marketing. We've created a new and sales account management team dedicated to customer success and expansion to drive up sells and cross sells.

Our account managers were sourced from our professional service team, so they already have deep domain expertise, strong product skills and a proven customer service history. They are productive out of the gate and are hitting the street running. We believe this new team can nurture existing accounts to drive more sales. With this team, we will also free up time for our sales directors to focus on what they do best, new customer acquisition.

We rolled out the new account manager program in the United States in Q4 of last year by transitioning this responsibility to manage installed account to account managers. We are effectively doubling the capacity of sales directors to chase new logo business. And because account managers carry a quota, we now have more feet on the street closing business. A great expansion story in the recent quarter happened at Synopsis, a leading global provider of electronic design automation tools and services.

Synopsis has been an export customer of ours since 2017, when we replaced a competitor solution to manage their U.S. trade operations. We've done very well on the U.S. side of this business, but since that times Synopsis has continued to struggle with all of the compliance work internationally using only manual processes and globally distributed team. They realize that without a standardized automated solution for export compliance on a global scale, they were needlessly using resources limiting their ability to scale and exposing themselves to compliance risk.

Therefore in the fourth quarter, our customer expanded their subscription with Amber Road to include several new modules to centralized compliance data, formalized and automates its processes globally. The changes, I just outline to our sales organization, are being supported with new technologies and thinking applied to marketing. Over the past 12 months, we have implemented an approach called account-based marketing in Europe, and we are very pleased with those results.

In case you aren’t familiar with account-based marketing, it is designed to compliment more traditional lead generation with better efforts to engage a specific set of highly valued targeted enterprise accounts. Account-based marketing is abbreviated ABM. ABM facilitates alignment between various Amber Road functions including sales, marketing, business development and product management to create better message -- messaging and higher levels of sales engagement with senior executives. ABM marketing programs are laser focused and performed very well for us in 2018 in Europe and helped to us win new accounts such as LEGO.

LEGO Group selected Amber Road's free trade agreement solution in the recent quarter as part of the global program to redesign its supply chain operations and maximize tax and duty savings on cross-border trade all around the globe. Our software will be used to ensure that LEGO is compliant with the complex rules of origin for more than 20 free trade agreements that covers South America, Asia, North America and Europe. Amber Road was chosen for this smart project because we are the only vendor supporting a large library free trade agreement and can implement them economically through our Quick Start program.

We believe we can leverage our win with LEGO and our new account-based marketing approach across other opportunities with similar characteristics and we will replicate this success. We are now rolling out ABM across the globe to our teams in the United States and China. LEGO also touches our other key strategic driver, free trade agreements. FTAs, free trade agreements are an important part of our competitive advantage. We have a big lead in terms of the capabilities of our software in the number of FTAs we support as well as the market awareness we generated and the success we are having at leading companies across many verticals.

We've seen strong adoption and a growing pipeline so we are confident our momentum will continue to accelerate. In addition, we continue to believe that with the new NAFTA called USMCA and the pending impact of Brexit, there will be a large number of customers who will need our help and additional trade content to successfully make the transition in 2019 and in 2020. These events should offer us a nice revenue boost later this year and into the next.

China is also an important long-term strategic driver for our business. We continue to see strong activity for our China trade management solution as China overhauls their customs processes. Our CTM module provides us a fantastic gateway to many large customers using a moderately priced product that delivers a quick win and then opens the door for other opportunities to sell these customers more of our Global Trade Management or GTM suite. Several great examples of our success in China this quarter include AkzoNobel and Ingersoll-Rand.

AkzoNobel is a leading maker of paints and coatings, is headquartered in the Netherlands and has multiple facilities all across China. They selected our solution to automate their China import and export operations, provides corporate level disability in response to recent China regulation reform measures and to automate AEO Certification and National Declaration Integration initiatives. We're very excited to service this new customer in China.

And another China example, Ingersoll-Rand selected our CTM module in the recent quarter. Ingersoll-Rand is a diversified industrial manufacturer for climate and industrial equipment. They have multiple facilities all across China engaged in China bonded manufacturing using the China customs handbook. They selected Amber Road's China Trade Management solution to automate their handbook, which was previously in all manual process. Our solution will provide them with operational visibility on a corporate level, minimize compliance risks, and dramatically cut costs by increasing the efficiency within their China operation.

We had our best booking year ever in China in 2018 and saw a great demand for multiple industries including automotive, chemical, pharmaceutical, industrial manufacturers, high-technology and retail. As an example of us effect in the recap vertical, we close business in the fourth quarter in China with Tiffany & Co. Tiffany & Co is one of the world's foremost luxury brand, they have subscribed to multiple modules including our Global Product Master and China Trade Management.

With hundreds of thousands of products, it was critical to Tiffany to be able to maintain accurate trade data especially for product classification. They had a lean team of compliance experts and only manual processes that were using spreadsheets and email, so the team couldn't keep up with the higher volumes of foreign trade. New regulations and trade complexity were relating to delays and errord.

With the expansions on the horizon, the Company recognized the need to improve productivity and responsiveness without increasing headcount now. Tiffany wanted to single global database to manage product classifications trade data and to automate their cross-border processes. Because the Amber Road pioneers this kind of automation, we remain unique in the marketplace and had a compelling proposition to offer Tiffany as they compare to us less mature offerings both in China and here in the United States.

The market in China has shifted. So while selling CTM is a good business for us in China. We are also seeing opportunities to expand our sales coverage and marketing efforts to encompass our full Global Trade Management platform with large Chinese national companies. There are many causes for this new demand. Many countries along with United States are telling China to play by the rules. In response, Chinese central government is now rigorously enforcing compliance of trade regulations to demonstrate to the rest the world that they can be a reliable trading partner.

The result is that Chinese companies are starting to look towards ways in which they can automate their global trade to be in compliant. We are taking advantage of this emerging trend by training all of our staff in Shanghai, Shenzhen and Hong-Kong to recognize those opportunities and to sell our broader GPM platform. We are still early in this process, but we believe this is a sizable opportunity for us and one in which we are well positioned given our own ground presence, unique set of solutions, deep set of trade content that's integrated with those solutions and the long list of referenceable customers in the region.

And finally, we've executed very well against our strategic objective to build the business that can deliver solid growth, combined with increasing of adjusted EBITDA and cash flow to strengthen our financial position. We took important steps in 2018 across the business to position us well for 2019 and the longer term. As Tom will detail in a moment, our 2019 guidance calls for double-digit subscription growth rate exiting the year and full year adjusted EBITDA margins that will continue to expand.

Based on our 2019 guidance which represents good revenue performance and a continued strong profit trend plus our growing pipeline of opportunities in the macro tailwinds related to global trade, we believe now is the right time to provide you with some additional insight into how we are building the business for the longer-term. We spent considerable time working on our models this year and next.

My comments about 2020 represents management goals and our board support for management based on the strong fundamentals that they seek. For 2020, we currently believe that Amber Road can sustain double digits subscription revenue growth and expand adjusted EBITDA margins into the double digits, while improving our cash flow. We believe the fundamentals are in place for a great 2019 and an even better, 2020.

With that, let me turn over to Tom.

Tom Conway

Thanks Jim. I’ll start with a detailed overview of our fourth quarter 2018 financial performance, and then provide some commentary on our first quarter and full year 2019 outlook. Following my closing remarks, we’ll open up the call for questions. As a reminder, we adopted ASC 606 on a modified retrospective basis in 2018.

Regarding the fourth quarter results, beginning with the statement of operations, we generated GAAP revenue in the quarter of $21.9 million compared to $20.6 million in the fourth quarter of 2018. Subscription revenue was 15.3 million an increase of 9% compared to 14.9 million in the prior year period and represents accelerating growth from the prior quarter.

Professional services revenue was 5.6 million in line with our expectations. This amount compared to 5.7 million in the same period a year ago. Our trailing 12 month recurring revenue retention rate through December was 101%, reflecting the long-term value of our customer relationships. We have sustained high levels of recurring revenues for the past five years, giving at the high-level of revenue and billings visibility in the forward quarters.

On a GAAP basis, our gross profit was 12.6 million or 58% of total revenue, compared to 11.4 million or 55% of total revenue in the prior year period. Subscription gross profit was 10.9 million or 67% of subscription revenue, compared to 9.9 million or 66% of subscription revenue in the fourth quarter of 2017.

Our gross profit on professional services was $1.8 million or 31% of professional services revenue. This gross profit performance compared to 1.5 million or 26% of professional services revenue in the same period last year.

On a GAAP basis, total operating expenses were 14.8 million compared to 13.2 million in the fourth quarter of 2017. Our fourth quarter GAAP operating loss was $2.1 million compared to a GAAP operating loss of $1.9 million in the fourth quarter of last year.

On a non-GAAP basis operating income was $392,000 an improvement compared to an operating loss of $85,000 in the year ago period. This performance was well ahead of our guidance. Non-GAAP operating income for the fourth quarter of 2018 excludes stock-based compensation.

We are pleased with the leverage we are seeing in the business, as we continue to drive both growth and profitability and we believe we have set the Company on a path to deliver improved levels of profit and cash flow. As we do this we will continue to make investments in sales and marketing and research and development to support the opportunities we see ahead for the business.

Our GAAP net loss was $2.6 million for the fourth quarter of 2018 compared to a GAAP net loss of $1.8 million in the prior year. GAAP net loss per share was $0.09 in the fourth quarter of 2018, compared to a net loss per share of $0.07 in the fourth quarter of 2017. These amounts were based on 28.1 million to 27.5 million shares outstanding respectively.

On a non-GAAP basis, net loss was $87,000 in the fourth quarter of 2018, which compares to a non-GAAP net loss of 10,000 in the prior year period. On a non-GAAP basis there were breakeven per share in the fourth quarter of 2018 in line with the prior year period. These per share amounts are based on 28.1 million to 27.5 million shares outstanding respectively.

We are very happy to report another great quarter of positive adjusted EBITDA. For the fourth quarter, adjusted EBITDA was $1.6 million positive an improvement compared to an adjusted EBITDA of 1.3 million in the same period last year. Cash flow used in operations in the fourth quarter of 2018 was $1.6 million compared to $2.1 million generated in Q4 2017.

Now, I'll quickly recap our full year results. 2018, total GAAP revenue was $85.2 million, up 8% year-over-year. Subscription revenue was $62.6 million, increasing 7% over 2017. Professional services revenue was 22.5 million, increasing 9% over 2017. On a non-GAAP basis, operating income was 428,000 in 2018, compared to a loss of $5.3 million to 2017. Non-GAAP operating income for the full year 2018 excludes stock-based compensation.

On a non-GAAP basis, our net loss was $1.3 million in 2018, this compares to a non-GAAP net loss of $6.9 million in 2017. Non-GAAP net loss per share was $0.05 in 2018 compared to a loss of $0.25 in the prior year. These per share amounts are based on 27.8 million to 27.4 million shares outstanding respectively. Adjusted EBITDA for 2018, was $5.4 million and meaningful improvement compared to an adjusted EBITDA of $87,000 in 2017.

Turning the focus our balance sheet, as of December 31, 2018, we had cash and cash equivalents of 7.5 million compared to 10.1 million as of September 30, 2018. Cash flow provided by operating activities in 2018 was 3.3 million, compared to the usage of $670,000 in 2017.

Before turning to guidance, I'm pleased to announce that we've renegotiated the credit agreement that governs our term loan and revolver, expanding the maturity date by two years from December 31, 2019 to December 31, 2021, while preserving the favorable attributes of the agreement. We continue to believe that we have ample liquidity to effectively run the business and support the strategic initiatives of the Company.

Turning to guidance. For full-year 2019, our guidance calls for subscription growth to be the driver of our business. Based on the strength of our 2018 bookings, our pipeline and the strategic initiatives Jim outlined, we expect subscription revenue to show improving year-over-year growth rates as we move through the quarters and to exit the year at double-digit year-over-year growth. As we further utilize our Quick Start program, we believe services will be approximately flat year-over-year in 2019 and beyond.

Moving to the specifics. Our 2019 full year guidance is as follows. We expect total revenue to be in the range of 88.7 million to 91.7 million. We expect non-GAAP adjusted operating income to be in the range of breakeven to $3 million. On a per-share basis we are expecting a range of non-GAAP adjusted net loss per share of $0.06 to non-GAAP income per share of $0.04. These amounts assume 29 million basic shares outstanding to 32.4 million fully diluted shares outstanding. We also expect to continue to generate positive cash flow from operations through 2019.

Turning to the first quarter of 2019. We expect some seasonal sequential declines in professional services. Additionally, Q4 2018 benefited slightly from transaction revenue and traditionally, we don't experience material transactional levels in Q1. Coupled with some deferred starts on Q4 2018 bookings, we expect these impacts to subscription revenue to be more than offset beginning in Q2 and to see nice sequential subscription growth throughout 2019.

Our Q1 2019 guidance is as follows. Total revenue is expected to be in the range of 20.3 million to 20.9 million. Non-GAAP adjusted operating loss is expected to be in the range of $700,000 to $100,000. Non-GAAP adjusted net loss per share is expected to be in the range of $0.04 to $0.02 assuming 28.3 million basic shares outstanding. Our expectations of non-GAAP loss from operations and non-GAAP loss per basic share for the first quarter and full year of 2019 exclude stock-based compensation.

As Jim noted, we are building a business to drive long-term growth and profit. We've been very successful in delivering on our strategic objectives to manage the business, to improving levels of profit and cash flow. As we look to 2020, we believe we can deliver both double-digit subscription growth and adjusted EBITDA margins along with improving levels of cash flow. We believe this positions us well for long-term future success.

Operator, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question today from Scott Berg with Needham & Company.

Scott Berg

I have got a couple questions here for you. Tom, let's start with the guidance for the year. Total revenue growth a little bit lower year-over-year. It sounds like some professional services are flat and subscription has a little bit of a delay in some fourth quarter bookings. How normal is that to have some of your subscription contracts have a maybe one or two quarter delay before the year ramps up?

Tom Conway

Yes, that's fairly common, Scott. It's a phenomena we've seen now a number of years. It depends in certain quarters it maybe more amplified, but as you are going into any given year, our backlog and subscription revenue is pretty well known. Obviously, the existing deals what we call the installed base is in contract or an easy to model, and we feel very good about the size of our pipeline and our ability to execute the new revenue from subscriptions in 2019 as well.

Scott Berg

And then, Jim, you've talked about bookings improving in Europe. How would you quantify the year overall in bookings perspective? You sound pleased, but where bookings actually up or I should say new bookings up year-over-year?

Jim Preuninger

Yes, new bookings are up year-over-year, and we had a lot of strength I think in Europe and China. I mentioned China was our best year ever, and as you might have recalled, we reorganized our sales leadership and asked one of our senior executives to accept the transfer to our Munich operation this time last year. And so, his impact there has been well felt, the introduction of account-based marketing in Europe, he reorganized the team, he recruited some new folks.

A lot of that the bigger transactions that I've talked about over the year attributed to the success that they've had there the LEGO deal in particular, that was a European initiatives. So, we're lucky. We're just executing well, but we were performing well and it's very balanced. So, we have good deals in Europe, good deals in the mid-market, doing well in the rest of the U.S. and obviously in China, and it's across the product spectrum. So while free trade agreement is a real hot module for us, a lot of the things are selling very well also. So, it's a nice healthy position for us Scott.

Scott Berg

I guess the last question for me then Jim is, you talked about the new cross wholesale teams that you're putting together with the people. The individuals responsible from your professional services teams and you've seen some early positive results. I guess the question is. How should we view the expectations for this type of team going forward to this next year because I can clearly provide some upsides here in prior bookings trajectory at least?

Jim Preuninger

No, I think, look at the good news is, we took some fairly senior experienced people. They know our products, they our policies the people how we do business, they were customer facing, they are very relax and comfortable with our customers and they can have a very deep level of conversations with them. Many of those the folks that were recruited to this new environment are very familiar with the customers that they got assigned to them, so they roll very naturally from this role because they have those relationships.

And I think that the typical inertia you have with hiring a new salesman is kind of virtually eliminated with this team. And I think, the benefit here is these people will get to spend more time, quality time, nurturing accounts, solving problems, describing to them, our product roadmap the things that we're seeing in the industry, new trends and experiences we're having with other customers. And I think it's just going to lead to far more up sells and cross sells.

Our sales directors which have traditionally sold new logos and then continue to manage those installed accounts, frankly, we are always as engaged in the latter activity, know they are out hunting. And I think, they did a good job of that and so, we said there is a good division here. There is a good opportunity when we have such a large installed base to divide it up and to give each group of professionals, the opportunity to do what they do best. So, it's really a plus-plus.

Operator

Next, we will hear from Tom Roderick with Stifel.

Tom Roderick

I want to go back and piggyback on Scott's question there, thinking a little bit more about the guidance here for the coming year and so the cadence of it. So, if I remember back to last year, the guidance and the goal for the end of this year was get to double digit revenue growth by the end of this year and got pretty down close, maybe not all the way there. And then it seems like a little bit of a temporary step back before things reaccelerates. So, if we put all that together, I guess the first type of question would be. Number one, how should we think about the first quarter subscription growth goal? Is that something that pulls back to mid-single digits temporarily as a lower than that? I guess if I can parse it against your comments on professional services those could be down 5% or 10%. So maybe just a little bit more clarity so we are in the right ballpark and thinking about Q1. And then relative to the reacceleration for the end of 2019 and beyond, how are you feeling about sales capacity? I look at the sales and marketing number and again, it's been kind of flattish on a spend basis for a few years. Do you need to accelerate the spend there? Or is it just the pipeline and conversion rates you expect to go up this year?

Jim Preuninger

So, the first part of your question, Tom, on what we are expecting for the first quarter, so the subscription -- think about the subscription growth rates year-over-year basis that are going to be in the low-to-mid single digits and accelerating throughout the year based on the timing of the deferred starts and the bookings that in the pipeline that we think are going to contribute nicely for the year. And obviously, the model we have us improving quarter-over-quarter on a subscription line in exiting as we said in our script above double digits, so setting us up nicely for 2020.

Tom Conway

We saw a similar cadence in 2018, so a little bit of a repeat, but the models are really built with a lot of details and we do have good visibility into that installed base. So, we feel good about it.

Tom Roderick

So, I'm not sure which one of you wants to tackle this by the question, you mentioned it on the script, and Tom, appreciate you mentioned it again. So, you said that you have got a couple of deals and maybe they are significant deals that you booked in the fourth quarter that has some differed starts. Can you just go into what the magnitude of those look like and what the timing of the deal starts look like? Have you already started? Are those things that have a specific timeline on that? Are they meaningful?

Jim Preuninger

This is Jim speaking. So, we saw it last year too where a lot of the deals we wrote, we wrote in December. And when we get around in negotiating subscription start dates, there is a discussion about when a project will meaningfully kick off and get rolling, and that generally doesn’t happen in January and February. So, we have some contracts that has subscription starts in March, others that are early in mid-Q2. So -- and I think that was the right answer for the customers, the right answer for us to. So, it's -- we tend to negotiate those contracts and look at the long-term relationship for next couple months of subscription revenue, it's not the end of the world.

Tom Roderick

Got it, okay….

Tom Conway

You've asked this question about sales capacity. It's Tom answering back. So, with this account our management team putting in place, it really pulls away a lot of burden, a lot of time that was spent by sales directors, working with those installed accounts and even though they may not have been equipped as well to deal with them. They were just always issues in communications and things that they needed to be responsible for. So, we've really freed up a lot of their timing in the United States, but we do intend to add to our sales ranks with new hires throughout the year. So, it's an area we want to invest in. We see good opportunities. There are some nice markets that are untapped that we haven't been through yet. And so, we're going to make those investments throughout the year.

Tom Roderick

And Jim a quick follow-up on that question about sales capacity, I appreciate your comments there about, the shifting nature of market demand in China, where the full GTM opportunity seem more in the scope now. Can you do that with the existing sales team over there effectively put the hold, the whole suite and the existing reps bag over there? Or does that require additive capacity in a different go-to-market?

Jim Preuninger

Yes, yes and yes. So, I think we have a great team there. They've been with us a while. They've been real successful selling China Trade Management. They know compliance calls. They know the market very well. Now, there are some new products. Global Trade Management is a suite of solutions that they've not sold before. They sold maybe just on a very limited basis. So, we spend a lot of time last fall training. We have to focus on education, sales as well as product training, and we're going to back them up. So, there is an engagement model that includes an awful lot of support from select folks on our staff in the U.S. and in Europe, who will be working with them to help them throughout the year, come up to speed. And certainly if we have bigger engagements, we’re going to be all over that. We will support it anyway we can.

Tom Roderick

Last quick one for me, as I think about your comments regarding EBITDA margins continuing to expand this year, Tom, where would you suggest we look for the majority of leverage in the model? Should that come again on the G&A and R&D side? Should we look for it somewhere else? How do we think about where we get some of that margin expansion? And can we see more of it on a gross margin side this year?

Tom Conway

We've been -- if you watch the subscription lines, subscription costs, we've been adding sequentially to the margin there. So, at the costs level, we're continuing to push on the levers that have helped us grow through '17 and '18 at that level. So, we will definitely get contribution as the gross margin level. We will see in the areas there are as obvious G&A will be one where we get leverage. R&D to some extent and sales and marketing at least there will be operating expenses because as we said we are investing in that regard, maybe a little forward than we would in R&D as a percentage of revenue. But the most critical component for us on is that, we are generating sequentially better margin at the gross margin level.

Operator

We will now hear from Glenn Mattson with Ladenburg.

Glenn Mattson

So maybe I think it was Jim. Can you repeat some of the comments around 2020, I kind of missed but you've laid out kind of a framework for how to think about growth rates and margins as you look into that year?

Jim Preuninger

Yes, so specifically what I said is, we spent as we always do a lot of time looking at our models and doing scenario building for 2019, but our models usually goes at current year plus one. And given some good metrics that we are seeing, some good momentum I think better fundamentals, a lot of demand in the marketplace now given those macro tailwinds, we talked about, we thought -- we felt pretty good about 2020 as well.

I mean there is a lot of year left, we got to get through '19 for sure, but we looked at our 2020 model. We obviously have those discussions with our board. We look at multiple years. And everybody thought, now, it's probably a good time to share more of that with you folks. I mean it’s a question we often get. How do you look longer term?

So, rather than -- so we just decided now with today on the call, so specifically my comments were given the plan that we have in front of us for '19 exiting the year with double-digit subscription growth in Q4, we see that ability that trend continuing into 2020. So, we will have double-digit subscription growth quarter over quarter, each quarter in 2020. We also believe that was improving. EBITDA margins will reach a point that in 2020. We will have double-digit EBITDA margins at that point as well.

Glenn Mattson

So I guess you talked a little bit about your confidence in that number, but maybe some more about what's backing up. I mean there is a lot of trade geopolitical stuff going on. So, I guess, it's probably that. But has that driven the growth rate for the industry higher to your point where you feel more comfortable about projecting better results for that far period out?

Jim Preuninger

Well, I can't talk about growth rates for the industry, but I -- just again what we see with the deals that come to the table, the quality of the deals, the types of transactions that we are writing the kinds that are in our pipeline. We are positioned really well to compete for these things when compete we are trying to solve problems in China where we are really the best game in town. When they want to implement pre trade payments, we're becoming the best game in town.

When they want to solve a global trade problem on a global scale, not just the small regional scale or just give something simple with export or something simple with visibility, but they really don’t want to tackle this thing from end-to-end, we are the best game in town. So, I think that the problem is better defined. I think we certainly see it almost daily in the news and it's not just the U.S. phenomena, it's global, right. So, I think global trade is topical and we've made a big long hard investment to get to disposition and we are starting to see the opportunity developing in front us in a nice way.

Glenn Mattson

And last thing would be just, as you look at the year and how it plays out with all the geopolitical events going on. It' something as far as Brexit goes, not quite as planned or maybe the USMCA has not signed by Congress or something like that. Are those kinds of things the kind of items that could flare up suddenly and create a situation where you have to kind of readjust your outlook for the year? Or is that kind of thing or those are the kind of things you think you'll managed through regardless of which way the chips fall on some of these issues that are still outstanding?

Jim Preuninger

Well, look I had to say that there are puts and takes in this spend and there could be those types of changes that we have to adjust for. But there is enough of them, there is enough of positive trends for us that I think overall we have a lot of levers to pull, I mean, I would tell you. We have the USMCA trade agreement largely done. It hasn’t been ratified yet, but we have customers right now they're taking preorders for it.

Brexit is right around the corner and we've been talking it about it for a while, but that deadline is looming and moving. And there is going to be a lot of companies I think you are going to scramble pretty quick, 2019 and 2020 to try to put some solutions in place to deal with that more effectively. So, those are two initiatives when we talked about with China, the trade wars. I mean all of these things. It can move a little right, move a little left. But again on balance, I think it sets us up really well.

Operator

[Operator Instructions] We have a question -- we'll here from Jason Celino with KeyBanc Capital Markets.

Jason Celino

So, first of all kind of high level question, we are entering in the second/third year of an environment with increased trade agreement and uncertainty, you mentioned trade wars. Overall, complexity in global trade, overall, it's increasing. What continues to be the most difficult part of the sale given these tailwinds? And then, how those conversations changed over the last year or two year?

Jim Preuninger

Well, I think the problem is becoming more immediate. So, we started to talk about Brexit in September or October of 2017, but the time frames that people had who will be planning and thinking about this and actually what's the plan for was really unknown, I mean how the UK would break away, and what type of systems we're going to be required, and what the regulations would look like, completely unknown then, right.

And so, I think while we could run a seminar in London and get 600 people to attend it as they been talk about how we might speculate or other experts, we might bring into might speculate about what would happen. There wasn’t a clear direction to take yet on that point.

And I think the same has been true with NAFTA until the USMCA came together, and we had at least at a senior level, everybody in agreement has been ratified yet, but the big negotiation is largely done. It hasn’t been immediate or actionable for our customers. This is a year where these things become actionable.

Jason Celino

And then kind of last clarifying question, you talked about some of the member -- more senior members of your customer service organization into some cross sell roles. Are you going to be backfilling the roles they had previously?

Jim Preuninger

Yes, but it’s a large team. Our professional services staff, it wasn’t customers support our -- profession services, those are the people that help new customers get trained and understand best practices and implement our solution. So that staff is well over 100, I mean, we didn't -- if we didn't pull up many over into sales, but it was a good team and our head of professional services already got plans on backfilling. So, we are in good shape.

Operator

That will conclude today's question-and-answer session. At this time, I would like to turn the conference over to Mr. Preuninger for any additional or closing remarks.

Jim Preuninger

Sure, so listen, everybody thank you very much for dialing in and listening to the call. We appreciate your support and looking forward to speaking with you again soon. Thank you, operator.

Operator

Thank you. That does conclude today's conference call. Thank you for your participation. You may now disconnect.