CHUBA Commercehub - Series A (delisted)

Revenue of $24.6 million increased 10% Year-Over-Year, $0.04 GAAP EPS, $0.08 adjusted EPSSigned new drop-ship agreement with top 10 U.S. retailer in grocery and general merchandise vertical Signed a top 10 Canadian retailer as a drop-ship customerTotal customer count increased 16% year-over-year as retailers ramped drop-ship programs

CommerceHub, Inc. (NASDAQ:CHUBA) (NASDAQ:CHUBK) (“CommerceHub,” “we,” “us,” “our” or the “Company”), a leading distributed commerce network for retailers and brands, today announced financial results for the quarter ended September 30, 2017.

“We are pleased with CommerceHub's third quarter performance, highlighted by two new drop-ship customer agreements and continued growth in revenue and cash flow,” said Frank Poore, CommerceHub’s Founder, President and CEO.  “Many of the largest retailers and brands view CommerceHub as a strategic partner and are choosing us to help enable their most critical growth strategies. Our total customer count increased 16% in the quarter as retailers continued to on-ramp suppliers and embrace drop-shipping,” he continued.  “Our sales pipeline is strong, and we remain intensely focused on signing new retailers and brands, increasing GMV share within our existing customers, and expanding margins through existing operating leverage as well as cost efficiencies.”

“CommerceHub delivered a solid third quarter with an 80% gross margin that helped to generate $2.0 million of net income and $8.4 million of adjusted EBITDA for the quarter,” said Mark Greenquist, CommerceHub’s CFO.  “We also generated strong free cash flow and paid down the remainder of our debt, increasing our net cash balance to $8.4 million,” he continued.

Third Quarter 2017 Financial Highlights

• Revenue was $24.6 million, a 10% year-over-year increase from $22.5 million in 2016. Core drop-ship revenue, which excludes revenue from our demand channel solutions, increased 12%.
• Gross margin was 80%, compared to 74% in 2016.
• Adjusted gross margin was 81%, compared to 75% in 2016.
• Net income was $2.0 million, or $0.04 per diluted share, compared to $710,000, or $0.02 per diluted share, in 2016. 
• Adjusted net income was $3.8 million, or $0.08 per diluted share, compared to $1.7 million, or $0.04 per diluted share, in 2016. 
• Adjusted EBITDA was $8.4 million, compared to $5.3 million in 2016.
• Operating cash flow was $6.7 million, compared to $12.8 million in 2016.
• Free cash flow was $6.3 million, compared to $12.0 million in 2016. 
• Net cash at quarter end was $8.4 million, and we had no long-term debt.  

An explanation of the non-GAAP financial measures discussed above is included below under the heading “Statement Regarding Non-GAAP Financial Measures.”  A reconciliation of these non-GAAP financial measures to the closest comparable GAAP financial measures has also been provided in the financial tables included at the end of this press release.

Other Recent Highlights

• Total customer count at September 30, 2017 was approximately 11,500, up 16% year-over-year from approximately 9,900 at September 30, 2016.
• Drop-ship order volume grew 15% in the third quarter compared to the same period in 2016.
• We signed a new drop-ship agreement with a top 10 U.S. retailer in the grocery and general merchandise vertical. While this retailer’s online sales are currently a small portion of its total sales, and so we expect them to start out as a smaller customer, we are thrilled that this retailer chose CommerceHub to serve as a foundational partner for its strategic ecommerce initiative.  We view this deal as strategic for CommerceHub as well as it opens the potential for us to expand the CommerceHub for Retailers network into the online grocery category.  
• We signed a top 10 Canadian retailer as a drop-ship customer.  We believe this signing demonstrates how we can leverage our leadership position in the U.S. to sign deals and grow in international markets.

RestructuringIn September, we commenced a process to consolidate software development and other corporate activities into our Albany, NY headquarters to more effectively support the ongoing growth of our business by streamlining and centralizing operations.  We believe the restructuring will create more integrated solutions and improve cost efficiencies.  The plan included the immediate reduction of certain positions in our Seattle, WA office, the retention of certain Seattle-based engineers for a transition period, the gradual replacement of many of those positions in Albany, and the long-term presence of a Seattle-based account services team dedicated to brands and marketplace customers.

As of September 30, 2017, we estimate that the total expenses associated with this restructuring will be between $5.0 million and $6.0 million, which includes future expenses expected to be incurred from termination and retention benefits accrued over the retention period, which we expect to run through early 2019, but excludes actual and expected cost savings associated with the restructuring.  During the nine months ended September 30, 2017, we incurred approximately $1.1 million in restructuring charges.  Our total restructuring liability of $0.9 million consists of accruals for termination and retention benefits, which we expect to fully pay by the end of the first quarter of 2019.  Depending on the pace and magnitude of re-hiring in our Albany office, as of September 30, 2017 we estimate this restructuring will result in a net reduction in personnel and facilities costs beginning in the fourth quarter of 2017, which will gradually increase throughout 2018 and 2019 to an estimated $2.0 million to $5.0 million per year.

Conference Call DetailsThe Company will offer a live conference call, and a live, listen-only webcast of the call via the CommerceHub Investor Relations website at 4:30 p.m., E.T., today, Wednesday, November 8, 2017.  See http://ir.commercehub.com/events.cfm, where supporting materials, including a presentation and supplemental financial data, have been posted.

Live Call:	U.S./Canada Toll-Free Participants Dial-in Number: (800) 219-6912International Toll Participants Dial-in Number: (574) 990-1026Conference ID/Passcode: 1023438
Webcast (live and replay):	http://ir.commercehub.com/events.cfm

About CommerceHub:CommerceHub is a distributed commerce network connecting supply, demand and delivery that helps retailers and brands increase sales by expanding product assortments, promoting products on the channels that perform, and enabling rapid, on-time customer delivery. With its robust platform and proven scalability, CommerceHub helped over 10,000 retailers, brands, and distributors achieve an estimated $13+ billion in Gross Merchandise Value in 2016. Important Information Regarding Forward-Looking StatementsThis press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about future business strategies, future financial performance, cost savings, market conditions and potential, future growth of ecommerce, customer growth, sales channel expansion, international expansion and other matters that are not historical facts. These statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, market acceptance and performance of our products and services, competitive issues, general market conditions, regulatory matters affecting our business and changes in law. These forward-looking statements speak only as of the date of this press release, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any such statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. There can be no assurance that any expectation or belief expressed in a forward-looking statement will occur, and you should not place undue reliance on any forward-looking statements. Please refer to our public filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, for additional information about us and the risks and uncertainties we face that may affect the forward-looking statements made in this press release.

Statement Regarding Non-GAAP Financial MeasuresIn addition to reporting financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), we provide non-GAAP financial measures that management considers in reviewing our financial performance because we feel they are relevant measures of the overall efficiency of our business model. These non-GAAP financial measures are not a substitute for, or superior to, and should be considered only in addition to, financial measures calculated in accordance with GAAP. They are subject to inherent limitations and exclude significant expenses and income that are required by GAAP to be recorded in our financial statements. Certain of these adjustments are based on estimates and assumptions of management and do not purport to reflect actual historical results. In addition, you should be aware that our computation of these non-GAAP financial measures may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate these measures in the same fashion. We define “adjusted gross profit” as gross profit plus share-based compensation, acquisition-related intangible amortization and restructuring charges. We define “adjusted gross margin” as adjusted gross profit divided by revenue. We define “adjusted operating expenses” as total operating expenses less share-based compensation, acquisition-related intangible amortization and restructuring charges. We define “adjusted EBITDA” as net income or loss plus interest expense, income tax expense, depreciation of property and equipment, amortization of capitalized software costs and intangible assets, share-based compensation expense and restructuring charges, less interest income and income tax benefit.  We define “adjusted net income” as net income or loss plus share-based compensation expense, acquisition-related intangible amortization, restructuring charges and the tax effects of these adjustments. We define “adjusted earnings per diluted share” or “adjusted EPS” as earnings per diluted share plus the diluted per share effects of share-based compensation, acquisition-related intangible amortization, restructuring charges and the tax effects of these adjustments.  We define “free cash flow” as net cash provided by, or used in, operating activities less purchases of property and equipment and additions to capitalized software.  Certain of these non-GAAP financial measures exclude restructuring charges, the elimination of which does not result in a reduction of operating expenses necessary to conduct our business.  By excluding these charges, we believe these non-GAAP financial measures provide supplemental information that enables us and investors to better analyze our operating performance and the sustainability of our results and to compare our performance on a more consistent basis from period to period. A reconciliation of these non-GAAP financial measures to the closest comparable GAAP financial measures has been provided in the financial tables included at the end of this press release.

CommerceHub Investor Relations ContactSara Leggat investor@commercehub.com

CommerceHub, Inc.
Consolidated Statement of Operations
(in thousands except per share data)
(unaudited)
		3 months ended:								9 months ended:
		09/30/17				09/30/16				09/30/17				09/30/16
	Revenue	$	24,614			$	22,478			$	74,390			$	67,671
	Cost of revenue		5,028				5,737				16,183				17,162
	Gross profit		19,586				16,741				58,207				50,509
	Gross margin		80	%			74	%			78	%			75	%
	Research and development		6,434				5,077				18,745				13,391
	Sales and marketing		2,432				3,023				6,750				9,024
	General and administrative		7,402				8,008				21,286				23,207
	Operating expenses		16,268				16,108				46,781				45,622
	Operating income		3,318				633				11,426				4,887
	Interest expense, net		(148	)			(361	)			(604	)			(132	)
	Pre-tax income		3,170				272				10,822				4,755
	Income tax expense (benefit)		1,182				(438	)			4,130				1,611
	Net income	$	1,988			$	710			$	6,692			$	3,144
	Earnings per share:
	Basic	$	0.05			$	0.02			$	0.16			$	0.07
	Diluted	$	0.04			$	0.02			$	0.15			$	0.07
	Share count:
	Basic		43,286				42,773				43,141				42,773
	Diluted		45,420				43,559				45,081				43,559

CommerceHub, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
		09/30/17			12/31/16
	Assets
	Cash and cash equivalents	$	8,438		$	6,471
	Accounts receivable, net of allowances		12,526			18,109
	Prepaid income taxes		3,054			4,311
	Prepaid expenses		1,833			1,549
	Total current assets		25,851			30,440
	Capitalized software, net		3,803			6,716
	Deferred services costs		4,898			4,989
	Property and equipment, net		6,701			7,629
	Goodwill		21,410			21,410
	Deferred income taxes		9,450			7,714
	Other long-term assets		1,466			1,122
	Total assets	$	73,579		$	80,020
	​
	Liabilities and Equity
	Accounts payable and accrued expenses	$	2,770		$	2,135
	Accrued payroll and related expenses		7,433			7,435
	Income taxes payable		8			7
	Deferred revenue		5,603			5,149
	Total current liabilities		15,814			14,726
	Deferred revenue, long-term		8,375			7,581
	Other long-term liabilities		2,201			1,135
	Long-term debt		-			26,000
	Total liabilities		26,390			49,442
	​
	Equity:
	Total equity		47,189			30,578
	Total liabilities and equity	$	73,579		$	80,020

CommerceHub, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
		3 months ended:								9 months ended:
		9/30/17				9/30/16				9/30/17				9/30/16
	Cash flows from operating activities
	Net income	$	1,988			$	710			$	6,692			$	3,144
	Adjustments to net income:
	Depreciation and amortization		2,002				2,453				6,278				7,315
	Amortization of debt issuance costs		55				55				166				55
	Share-based compensation		2,009				2,193				6,986				8,753
	Deferred income taxes		(811	)			(2,199	)			(1,736	)			17,015
	Bad debt expense		340				440				931				695
	Accrued interest income		-				-				-				(273	)
	Impairment and loss on disposal of long-term assets		193				-				210				160
	Working capital changes:
	Accounts receivable		(1,146	)			(252	)			4,650				5,667
	Prepaid expenses and other assets		(299	)			(536	)			(787	)			(956	)
	Income taxes, net		(42	)			1,548				1,258				810
	Deferred costs		(61	)			94				91				(201	)
	Deferred revenue		425				297				1,249				266
	Accounts payable and accrued expenses		806				248				1,399				479
	Accrued payroll and related expenses		1,243				1,283				(4	)			416
	Share-based compensation liability payments		-				(754	)			-				(86,684	)
	Parent receivables and payables, net		-				7,234				-				(9,112	)
	Net cash provided by (used in) operating activities		6,702				12,814				27,383				(52,451	)
	Cash flows from investing activities
	Purchases of property and equipment		(210	)			(377	)			(1,159	)			(4,513	)
	Additions to capitalized software		(154	)			(459	)			(1,138	)			(3,963	)
	Collections on note receivable - Parent		-				-				-				36,380
	Net cash (used in) provided by investing activities		(364	)			(836	)			(2,297	)			27,904
	Cash flows from financing activities
	Borrowings on credit agreement		-				50,000				-				50,000
	Repayments on credit agreement		(6,000	)			(9,000	)			(26,000	)			(9,000	)
	Cash paid for debt issuance costs		-				(100	)			-				(1,100	)
	Purchase of treasury stock		-				-				-				(3,600	)
	Cash received from exercise of stock options		860				175				2,417				248
	Cash received from employee stock purchase plan		464				-				464				-
	Borrowings on note payable - Parent		-				-				-				28,664
	Payments on note payable - Parent		-				(28,664	)			-				(28,664	)
	Contributions from Parent		-				6,000				-				6,000
	Dividends paid to Parent		-				(19,730	)			-				(19,730	)
	Net cash (used in) provided by financing activities		(4,676	)			(1,319	)			(23,119	)			22,818
	Currency effect on cash		(1	)			-				-				-
	Net increase (decrease) in cash and cash equivalents		1,661				10,659				1,967				(1,729	)
	Beginning cash and cash equivalents		6,777				6,949				6,471				19,337
	Ending cash and cash equivalents	$	8,438			$	17,608			$	8,438			$	17,608

CommerceHub, Inc.
Supplemental Information
(in thousands)
(unaudited)
		3 months ended:										9 months ended:
		9/30/17			9/30/16				% Inc (Dec)			9/30/17			9/30/16				% Inc (Dec)
	Revenue by type:
	Usage revenue	$	15,833		$	14,562			9	%		$	48,245		$	44,437			9	%
	Subscription revenues		6,986			6,420			9	%			20,826			18,766			11	%
	Set-up and professional services		1,795			1,496			20	%			5,319			4,468			19	%
	Total revenue	$	24,614		$	22,478			10	%		$	74,390		$	67,671			10	%
		3 months ended:										9 months ended:
		9/30/17			9/30/16							9/30/17			9/30/16
	Share-based compensation:
	Cost of revenue	$	100		$	(49	)					$	299		$	(207	)
	Research and development		286			584							1,387			1,697
	Sales and marketing		113			103							548			704
	General and administrative		1,510			1,555							4,752			6,559
	Total	$	2,009		$	2,193						$	6,986		$	8,753

CommerceHub, Inc.
GAAP to Non-GAAP Reconciliations
(in thousands)
(unaudited)
	Reconciliation of GAAP gross profit to adjusted gross profit:
		3 months ended:								9 months ended:
		9/30/17				9/30/16				9/30/17				9/30/16
	Gross profit	$	19,586			$	16,741			$	58,207			$	50,509
	Share-based compensation		100				(49	)			299				(207	)
	Acquisition-related intangible amortization		-				187				-				562
	Restructuring charges (1)		240				-				240				-
	Adjusted gross profit	$	19,926			$	16,879			$	58,746			$	50,864
	Adjusted gross margin		81	%			75	%			79	%			75	%
	Reconciliation of GAAP operating expenses to adjusted operating expenses:
		3 months ended:								9 months ended:
		9/30/17				9/30/16				9/30/17				9/30/16
	Operating expenses	$	16,268			$	16,108			$	46,781			$	45,622
	Share-based compensation		(1,909	)			(2,242	)			(6,687	)			(8,960	)
	Acquisition-related intangible amortization		-				(250	)			-				(750	)
	Restructuring charges (1)		(836	)			-				(836	)			-
	Adjusted operating expenses	$	13,523			$	13,616			$	39,258			$	35,912
	Reconciliation of GAAP net income to adjusted EBITDA:
		3 months ended:								9 months ended:
		9/30/17				9/30/16				9/30/17				9/30/16
	Net income	$	1,988			$	710			$	6,692			$	3,144
	Interest expense (income), net		148				361				604				132
	Income tax expense (benefit)		1,182				(438	)			4,130				1,611
	Depreciation and amortization		2,002				2,453				6,278				7,315
	Share-based compensation		2,009				2,193				6,986				8,753
	Restructuring charges (1)		1,076				-				1,076				-
	Adjusted EBITDA	$	8,405			$	5,279			$	25,766			$	20,955
	(1) Restructuring charges include termination and retention benefits and the impairment of certain capitalized software projects in connection with our 2017 Seattle restructuring plan.

CommerceHub, Inc.
GAAP to Non-GAAP Reconciliations, continued
(in thousands except per share data)
(unaudited)
	Reconciliation of GAAP net income to adjusted net income:
		3 months ended:								9 months ended:
		9/30/17				9/30/16				9/30/17				9/30/16
	Net income	$	1,988			$	710			$	6,692			$	3,144
	Share-based compensation		2,009				2,193				6,986				8,753
	Acquisition-related intangible amortization		-				437				-				1,312
	Restructuring charges (1)		1,076				-				1,076				-
	Tax effect of adjustments (2)		(1,320	)			(1,599	)			(3,424	)			(4,317	)
	Adjusted net income	$	3,753			$	1,741			$	11,330			$	8,892
	Reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share:
		3 months ended:								9 months ended:
		9/30/17				9/30/16				9/30/17				9/30/16
	GAAP earnings per diluted share	$	0.04			$	0.02			$	0.15			$	0.07
	Share-based compensation		0.04				0.05				0.15				0.20
	Acquisition-related intangible amortization		-				0.01				-				0.03
	Restructuring charges (1)		0.02				-				0.02				-
	Tax effect of adjustments (2)		(0.03	)			(0.04	)			(0.08	)			(0.10	)
	Adjusted earnings per diluted share	$	0.08			$	0.04			$	0.25			$	0.20
	Diluted share count		45,420				43,559				45,081				43,559
	(1) Restructuring charges include termination and retention benefits and the impairment of certain capitalized software projects in connection with our 2017 Seattle restructuring plan.
	(2) Adjusted earnings per diluted share assumes a long-term projected tax rate of 40%
	Reconciliation of GAAP net cash provided by (used in) operating activities to free cash flow:
		3 months ended:								9 months ended:
		9/30/17				9/30/16				9/30/17				9/30/16
	Net cash provided by (used in) operating activities	$	6,702			$	12,814			$	27,383			$	(52,451	)
	Purchases of property and equipment		(210	)			(377	)			(1,159	)			(4,513	)
	Additions to capitalized software		(154	)			(459	)			(1,138	)			(3,963	)
	Free cash flow (1)	$	6,338			$	11,978			$	25,086			$	(60,927	)
	(1) Includes share-based compensation liability payments of:		-				(754	)			-				(86,684	)