UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-35940
____________________________________________________
CHANNELADVISOR CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________________ 
Delaware
 
56-2257867
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
3025 Carrington Mill Boulevard, Morrisville, NC
 
27560
(Address of principal executive offices)
 
(Zip Code)
(919) 228-4700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former
fiscal year, if changed since last report)
____________________________________________________ 

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.001 par value
ECOM
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨
  
Smaller reporting company
¨
Emerging growth company

¨


 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x
The number of outstanding shares of the registrant's common stock, par value $0.001 per share, as of the close of business on October 31, 2019 was 28,058,807.


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
  
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49
 
 
50


1
Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANNELADVISOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 

September 30, 2019

December 31, 2018
 
(unaudited)

 
Assets



Current assets:



Cash and cash equivalents
$
48,226


$
47,185

Accounts receivable, net of allowance of $848 and $652 as of September 30, 2019 and December 31, 2018, respectively
21,292


23,436

Prepaid expenses and other current assets
8,231


9,248

Total current assets
77,749


79,869

Operating lease right of use assets
12,030

 
—

Property and equipment, net
10,249


12,007

Goodwill
23,486


23,486

Intangible assets, net
1,438


1,894

Deferred contract costs, net of current portion
12,667

 
11,336

Long-term deferred tax assets, net
3,486

 
4,162

Other assets
784


1,515

Total assets
$
141,889


$
134,269

Liabilities and stockholders' equity



Current liabilities:



Accounts payable
$
1,339


$
1,598

Accrued expenses
8,958


9,358

Deferred revenue
21,803


24,205

Other current liabilities
6,455


3,569

Total current liabilities
38,555


38,730

Long-term operating leases, net of current portion
10,597

 
—

Long-term finance leases, net of current portion
—


1,404

Lease incentive obligation
—

 
2,154

Other long-term liabilities
970


2,343

Total liabilities
50,122


44,631

Commitments and contingencies





Stockholders' equity:



Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding as of September 30, 2019 and December 31, 2018
—

 
—

Common stock, $0.001 par value, 100,000,000 shares authorized, 28,058,807 and 27,347,115 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
28


27

Additional paid-in capital
276,211


271,550

Accumulated other comprehensive loss
(2,302
)

(1,707
)
Accumulated deficit
(182,170
)

(180,232
)
Total stockholders' equity
91,767


89,638

Total liabilities and stockholders' equity
$
141,889


$
134,269

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

2
Table of Contents

CHANNELADVISOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
31,678

 
$
32,324

 
$
95,184

 
$
96,429

Cost of revenue
7,251

 
7,606

 
21,876

 
21,934

Gross profit
24,427

 
24,718

 
73,308

 
74,495

Operating expenses:

 
 
 
 
 
 
Sales and marketing
12,403

 
14,921

 
40,808

 
45,785

Research and development
4,803

 
5,350

 
15,161

 
16,989

General and administrative
5,440

 
6,688

 
19,272

 
19,847

Total operating expenses
22,646

 
26,959

 
75,241

 
82,621

Income (loss) from operations
1,781

 
(2,241
)
 
(1,933
)
 
(8,126
)
Other income (expense):
 
 
 
 
 
 
 
Interest income (expense), net
205

 
120

 
599

 
351

Other income (expense), net
(44
)
 
22

 
(32
)
 
2

Total other income (expense)
161

 
142

 
567

 
353

Income (loss) before income taxes
1,942

 
(2,099
)
 
(1,366
)
 
(7,773
)
Income tax expense
213

 
188

 
572

 
435

Net income (loss)
$
1,729

 
$
(2,287
)
 
$
(1,938
)
 
$
(8,208
)
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.06

 
$
(0.08
)
 
$
(0.07
)
 
$
(0.30
)
Diluted
$
0.06

 
$
(0.08
)
 
$
(0.07
)
 
$
(0.30
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
28,049,199

 
27,294,134

 
27,824,696

 
27,073,332

Diluted
28,754,679

 
27,294,134

 
27,824,696

 
27,073,332

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


3
Table of Contents

CHANNELADVISOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
1,729


$
(2,287
)
 
$
(1,938
)
 
$
(8,208
)
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(530
)
 
(250
)
 
(595
)
 
(732
)
Total comprehensive income (loss)
$
1,199

 
$
(2,537
)
 
$
(2,533
)
 
$
(8,940
)
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


4
Table of Contents

CHANNELADVISOR CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net loss
$
(1,938
)
 
$
(8,208
)
Adjustments to reconcile net loss to cash and cash equivalents provided by operating activities:
 
 
 
Depreciation and amortization
4,806

 
4,509

Bad debt expense
911

 
1,036

Stock-based compensation expense
7,000

 
8,023

Deferred income taxes
513

 
373

Other items, net
43

 
(667
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
1,007

 
4,451

Prepaid expenses and other assets
2,282

 
10,588

Deferred contract costs
(2,661
)
 
(5,325
)
Accounts payable and accrued expenses
(2,112
)
 
(11,164
)
Deferred revenue
(2,337
)
 
(2,514
)
Cash and cash equivalents provided by operating activities
7,514

 
1,102

Cash flows from investing activities
 
 
 
Purchases of property and equipment
(755
)
 
(1,586
)
Payment of software development costs
(1,972
)
 
(579
)
Cash and cash equivalents used in investing activities
(2,727
)
 
(2,165
)
Cash flows from financing activities
 
 
 
Repayment of finance leases
(2,357
)
 
(2,092
)
Proceeds from exercise of stock options
968

 
1,086

Payment of statutory tax withholding related to net-share settlement of restricted stock units
(2,101
)
 
(2,130
)
Cash and cash equivalents used in financing activities
(3,490
)
 
(3,136
)
Effect of currency exchange rate changes on cash and cash equivalents
(256
)
 
(333
)
Net increase (decrease) in cash and cash equivalents
1,041

 
(4,532
)
Cash and cash equivalents, beginning of period
47,185

 
53,422

Cash and cash equivalents, end of period
$
48,226

 
$
48,890

Supplemental disclosure of cash flow information
 
 
 
Cash paid for interest
$
215

 
$
26

Cash paid for income taxes, net
$
64

 
$
81

Supplemental disclosure of noncash investing and financing activities
 
 
 
Accrued statutory tax withholding related to net-share settlement of restricted stock units
$
1,206

 
$
635

Accrued capital expenditures
$
35

 
$
361

Finance lease obligations entered into for the purchase of fixed assets
$
—

 
$
4,217

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5
Table of Contents

CHANNELADVISOR CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
1. DESCRIPTION OF THE BUSINESS
ChannelAdvisor Corporation ("ChannelAdvisor" or the "Company") was incorporated in the state of Delaware and capitalized in June 2001. The Company began operations in July 2001. ChannelAdvisor is a provider of software-as-a-service, or SaaS, solutions and its mission is to connect and optimize the world's commerce. ChannelAdvisor's e-commerce cloud platform helps brands and retailers worldwide improve their online performance by expanding sales channels, connecting with consumers around the world, optimizing their operations for peak performance and providing actionable analytics to improve competitiveness. The Company is headquartered in Morrisville, North Carolina and maintains sales, service, support and research and development offices in various domestic and international locations.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Interim Condensed Consolidated Financial Information
The accompanying condensed consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") as contained in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of financial position, the results of operations, comprehensive loss and cash flows. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited interim financial statements should be read in conjunction with the audited financial statements and related footnotes for the year ended December 31, 2018 ("fiscal 2018"), which are included in the Company's Annual Report on Form 10-K for fiscal 2018. Except for the adoption of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASC 842"), there have been no material changes to the Company's significant accounting policies from those described in the footnotes to the audited financial statements contained in the Company's Annual Report on Form 10-K for fiscal 2018. Refer to Note 5, "Leases," for additional information regarding the Company's adoption of ASC 842.
Recent Accounting Pronouncements
Standard
Description
Effect on the Financial Statements or Other Significant Matters
Standards that the Company has not yet adopted as of September 30, 2019
Financial Instruments:
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326)

Effective date:
January 1, 2020

This standard replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more useful information about expected credit losses.
The Company has formed a project team to prepare for the adoption of this standard by its effective date. The project team has developed an adoption plan and is evaluating the impact of this guidance on the Company's consolidated financial statements.
Intangibles:
ASU 2018-15, Intangibles -Goodwill and Other - Internal-Use Software (Subtopic 350-40)

Effective date:
January 1, 2020

This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.
The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

6

Standard
Description
Effect on the Financial Statements or Other Significant Matters
Standards that the Company adopted as of January 1, 2019
Leases:
ASU 2016-02, Leases (Topic 842)



This standard requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position. This standard also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases.
The Company adopted this standard effective January 1, 2019 using the alternate adoption method which allows for the initial application of the standard as of the adoption date. The reported results as of and for the three and nine months ended September 30, 2019 in the accompanying unaudited condensed consolidated financial statements are presented under ASC 842, while prior period results have not been adjusted and are reported in accordance with historical accounting guidance in effect for those periods. The Company elected to use the package of three practical expedients, as well as the practical expedient to apply hindsight in determining lease terms. Refer to Note 5, "Leases," for additional information regarding the impact of adoption under ASC 842 on the Company's consolidated financial statements.


The Company has reviewed new accounting pronouncements that were issued during the nine months ended September 30, 2019 and does not believe that these pronouncements are applicable to the Company, or that they will have a material impact on its financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable allowance, the useful lives of long-lived assets and other intangible assets, income taxes, assumptions used for purposes of determining stock-based compensation, leases, including estimating lease terms and extensions, and revenue recognition, including standalone selling prices for contracts with multiple performance obligations and the expected period of benefit for deferred contract costs, among others. Estimates and assumptions are also required to value assets acquired and liabilities assumed in conjunction with business combinations. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities.

7

3. STOCKHOLDERS' EQUITY
The following table summarizes quarterly stockholders' equity activity for the nine month period ended September 30, 2019 and 2018 (in thousands, except share data):
 
Quarterly Activity For The Nine Months Ended September 30, 2019
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Stockholders'
Equity
 
Shares
 
Amount
 
 
Balance, December 31, 2018
27,347,115

 
$
27

 
$
271,550

 
$
(1,707
)
 
$
(180,232
)
 
$
89,638

Exercise of stock options and vesting of restricted stock units
681,944

 
1

 
936

 
—

 
—

 
937

Stock-based compensation expense
—

 
—

 
3,398

 
—

 
—

 
3,398

Statutory tax withholding related to net-share settlement of restricted stock units
(178,071
)
 
—

 
(2,277
)
 
—

 
—

 
(2,277
)
Net loss
—

 
—

 
—

 
—

 
(2,329
)
 
(2,329
)
Foreign currency translation adjustments
—

 
—

 
—

 
78

 
—

 
78

Balance, March 31, 2019
27,850,988

 
28

 
273,607

 
(1,629
)
 
(182,561
)
 
89,445

Exercise of stock options and vesting of restricted stock units
290,346

 
—

 
15

 
—

 
—

 
15

Stock-based compensation expense
—

 
—

 
2,801

 
—

 
—

 
2,801

Statutory tax withholding related to net-share settlement of restricted stock units
(98,975
)
 
—

 
(981
)
 
—

 
—

 
(981
)
Net loss
—

 
—

 
—

 
—

 
(1,338
)
 
(1,338
)
Foreign currency translation adjustments
—

 
—

 
—

 
(143
)
 
—

 
(143
)
Balance, June 30, 2019
28,042,359

 
28

 
275,442

 
(1,772
)
 
(183,899
)
 
89,799

Exercise of stock options and vesting of restricted stock units
21,958

 
—

 
17

 
—

 
—

 
17

Stock-based compensation expense
—

 
—

 
801

 
—

 
—

 
801

Statutory tax withholding related to net-share settlement of restricted stock units
(5,510
)
 
—

 
(49
)
 
—

 
—

 
(49
)
Net income
—

 
—

 
—

 
—

 
1,729

 
1,729

Foreign currency translation adjustments
—

 
—

 
—

 
(530
)
 
—

 
(530
)
Balance, September 30, 2019
28,058,807

 
$
28

 
$
276,211

 
$
(2,302
)
 
$
(182,170
)
 
$
91,767


8

 
Quarterly Activity For The Nine Months Ended September 30, 2018
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
Total
Stockholders'
Equity
 
Shares
 
Amount
 
 
Balance, December 31, 2017
26,601,626

 
$
27

 
$
262,805

 
$
(789
)
 
$
(180,132
)
 
$
81,911

Cumulative effect of accounting change (1)
—

 
—

 
—

 
—

 
7,501

 
7,501

Exercise of stock options and vesting of restricted stock units
691,415

 
—

 
159

 
—

 
—

 
159

Stock-based compensation expense
—

 
—

 
2,733

 
—

 
—

 
2,733

Statutory tax withholding related to net-share settlement of restricted stock units
(209,154
)
 
—

 
(1,963
)
 
—

 
—

 
(1,963
)
Net loss
—

 
—

 
—

 
—

 
(3,157
)
 
(3,157
)
Foreign currency translation adjustments
—

 
—

 
—

 
109

 
—

 
109

Balance, March 31, 2018
27,083,887

 
27

 
263,734

 
(680
)
 
(175,788
)
 
87,293

Exercise of stock options and vesting of restricted stock units
247,664

 
—

 
845

 
—

 
—

 
845

Stock-based compensation expense
—

 
—

 
2,316

 
—

 
—

 
2,316

Statutory tax withholding related to net-share settlement of restricted stock units
(52,902
)
 
—

 
(673
)
 
—

 
—

 
(673
)
Net loss
—

 
—

 
—

 
—

 
(2,764
)
 
(2,764
)
Foreign currency translation adjustments
—

 
—

 
—

 
(591
)
 
—

 
(591
)
Balance, June 30, 2018
27,278,649

 
27

 
266,222

 
(1,271
)
 
(178,552
)
 
86,426

Exercise of stock options and vesting of restricted stock units
42,565

 
—

 
82

 
—

 
—

 
82

Stock-based compensation expense
—

 
—

 
2,974

 
—

 
—

 
2,974

Statutory tax withholding related to net-share settlement of restricted stock units
(9,745
)
 
—

 
(129
)
 
—

 
—

 
(129
)
Net loss
—

 
—

 
—

 
—

 
(2,287
)
 
(2,287
)
Foreign currency translation adjustments
—

 
—

 
—

 
(250
)
 
—

 
(250
)
Balance, September 30, 2018
27,311,469

 
$
27

 
$
269,149

 
$
(1,521
)
 
$
(180,839
)
 
$
86,816

(1) The Company recorded a reduction to accumulated deficit at January 1, 2018 as a result of its adoption of ASC 606, Revenue from Contracts with Customers.
4. GOODWILL AND INTANGIBLE ASSETS
The Company has acquired intangible assets in connection with its business acquisitions. These assets were recorded at their estimated fair values at the acquisition date and are being amortized over their respective estimated useful lives using the straight-line method. The estimated useful lives and amortization methodology used in computing amortization are as follows:
 
Estimated Useful Life
Amortization Methodology
Customer relationships
7 years
Straight-line
Acquired technology
7 years
Straight-line
Amortization expense associated with the Company's intangible assets was $0.2 million for each of the three months ended September 30, 2019 and 2018, and $0.5 million for each of the nine months ended September 30, 2019 and 2018.
There were no changes to the Company's goodwill during the nine months ended September 30, 2019.

9

5. LEASES
Financial Statement Impact of Adopting ASC 842, "Leases"
On January 1, 2019, the Company adopted ASC 842. The most significant impact of this standard relates to the Company's recognition of right of use (“ROU”) assets and lease liabilities for its operating leases. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The Company's accounting for finance leases, classified as capital leases under historical accounting guidance, was unchanged.
The following table summarizes the financial statement line items impacted by the Company's adoption of ASC 842 at January 1, 2019 (in thousands):
Balance Sheet - select financial statement line items
Ending balance
 
Effect of the adoption of
 
Beginning balance
 
December 31, 2018
 
ASC 842
 
January 1, 2019
Operating lease right of use assets
$
—

 
$
15,099

 
$
15,099

Other assets
1,515

 
(504
)
(1)
1,011

Total assets
134,269

 
14,595

 
148,864

Other current liabilities
3,569

 
3,116

(2)
6,685

Total current liabilities
38,730

 
3,116

 
41,846

Long-term operating leases, net of current portion

—

 
14,310

 
14,310

Lease incentive obligation
2,154

 
(2,154
)
 
—

Other long-term liabilities
2,343

 
(657
)
(3)
1,686

Total liabilities
44,631

 
14,615

 
59,246

Accumulated other comprehensive loss
(1,707
)
 
(12
)
 
(1,719
)
Total stockholders' equity
89,638

 
(12
)
 
89,626

Total liabilities and stockholders' equity
$
134,269

 
14,595

(4)
148,864

(1) Derecognition of lease inception fees associated with certain leases previously amortized over the respective lives of those leases.
(2) Net effect of derecognizing the Company's current deferred rent and lease incentive obligations as of December 31, 2018 and recognizing current operating lease liabilities.
(3) Derecognition of the Company's long-term deferred rent as of December 31, 2018.
(4) The resulting incremental expense due to the Company's adoption of ASC 842 was not considered significant and is recorded as rent expense in General and administrative expense in the accompanying unaudited condensed consolidated statement of operations for the nine months ended September 30, 2019.
Operating and Finance Lease Commitments
The Company leases office facilities and certain equipment under non-cancelable operating and finance leases. The Company determines if an arrangement is a lease and whether its classification is operating or finance at inception. Leases with an initial term of twelve months or less that are not expected to be renewed are not recorded on the balance sheet. For such leases, lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Certain operating leases include options to renew, with renewal terms extending up to 10 years, subject to certain conditions and notice obligations set forth in the lease agreements. The exercise of lease renewal options is at the Company's discretion.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the Company's best estimate of the collateralized borrowing rate over a similar term at the commencement date of the lease in determining the present value of future payments. The operating lease ROU assets also include any lease payments made and lease incentives and initial direct costs incurred. The lease terms may include options to extend the lease when it is reasonably certain that the Company will exercise that option.
The following table summarizes the Company's lease assets and liabilities as of September 30, 2019 (in thousands):

10

 
As of September 30, 2019
Assets
 
Operating lease right of use assets
$
12,030

Finance lease assets, included in Property and equipment, net (1)
2,273

Total leased assets
$
14,303

Liabilities
 
Current
 
    Operating lease liabilities, included in Other current liabilities
$
4,462

    Finance lease liabilities, included in Other current liabilities
1,404

Long-term
 
    Long-term operating leases, net of current portion
10,597

Total lease liabilities
$
16,463

(1) Finance leases are presented net of accumulated amortization of $5.3 million as of September 30, 2019.
The following table summarizes the components of lease expense for the three and nine months ended September 30, 2019 (in thousands):
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost, included in General and administrative expense (1)
$
1,108

 
$
3,418

Finance lease cost:
 
 
 
    Amortization of leased assets, included in General and administrative expense
546

 
1,639

    Interest on lease liabilities, included in Other income (expense), net
26

 
114

Less: sublease income, reducing rent expense in General and administrative expense (2)
(41
)
 
(126
)
Net lease cost
$
1,639

 
$
5,045

(1) Excludes short-term lease costs of $0.1 million and $0.3 million for the three and nine months ended September 30, 2019, respectively.
(2) The Company subleases space to a third party for which it anticipates receiving $0.2 million in annual rental payments during the term of the sublease agreement, which is through August 2022.
The following table summarizes other information related to leases for the nine months ended September 30, 2019 (in thousands):
 
Nine Months Ended September 30, 2019
Supplemental cash flows information
 
Cash paid for amounts included in the measurement of lease liabilities:
 
    Operating cash outflows from operating leases
$
3,594

    Operating cash outflows from finance leases
215

    Financing cash outflows from finance leases
2,357

Weighted-average remaining lease term (years)
 
    Operating leases
3.36

    Finance leases
1.58

Weighted-average discount rate
 
    Operating leases
5.50
%
    Finance leases
7.39
%


11

The following table summarizes maturities of lease liabilities as of September 30, 2019 (in thousands):
 
Operating Leases (1)
 
Finance Leases
2019 (remaining three months)
$
1,297

 
$
—

2020
5,084

 
1,507

2021
4,842

 
—

2022
4,153

 
—

2023
1,151

 
—

Total lease payments
$
16,527

 
$
1,507

Less: imputed interest
(1,468
)
 
(103
)
Present value of lease liabilities
$
15,059

 
$
1,404

(1) Excludes future minimum lease payments for short-term operating leases of $0.1 million.
As of September 30, 2019, the Company had no material operating or finance leases that had not yet commenced.
6. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition and Disaggregation of Revenue
The Company derives the majority of its revenue from subscription fees paid for access to and usage of its SaaS solutions for a specified period of time, typically one year. A portion of the subscription fee is typically fixed and is based on a specified minimum amount of gross merchandise value ("GMV") or advertising spend that a customer expects to process through the Company's platform over the contract term. The remaining portion of the subscription fee is variable and is based on a specified percentage of GMV or advertising spend processed through the Company's platform in excess of the customer's specified minimum GMV or advertising spend amount. In addition to subscription fees, contracts with customers may include implementation fees for launch assistance and training. Fixed subscription and implementation fees are billed in advance of the subscription term and are due in accordance with contract terms, which generally provide for payment within 30 days. Variable fees are subject to the same payment terms, although they are generally billed the month after they are incurred. The Company also generates revenue from its solutions that allow brands to direct potential consumers from their websites and digital marketing campaigns to authorized resellers. The Company's contracts typically have a one year term. The Company's contractual arrangements include performance, termination and cancellation provisions, but do not provide for refunds. Customers do not have the contractual right to take possession of the Company's software at any time. Sales taxes collected from customers and remitted to government authorities are excluded from revenue.
The following table summarizes revenue disaggregation by product for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019


 
2018 (1)


 
2019


 
2018 (1)


Marketplaces
$
23,348

 
$
23,965

 
$
70,466

 
$
71,631

Digital Marketing
4,771

 
4,577

 
13,943

 
13,427

Other
3,559

 
3,782

 
10,775

 
11,371

 
$
31,678

 
$
32,324

 
$
95,184

 
$
96,429

(1) Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no impact on the reported total revenue for the period.
Marketplaces and Digital Marketing - The Company's Marketplaces module connects customers to third-party e-commerce marketplaces and provides access to advertising programs and advanced competitive features on major marketplaces. The Company's Digital Marketing module allows customers to create and optimize advertisements on multiple online shopping channels. Customers may subscribe to each of these modules on a self-service or managed-service basis. Self-service subscriptions allow the customer to manage their own activity on the platform. Launch services are also available, although they are not required for the customer to access the platform. Revenue from self-service subscriptions, including fixed subscription fees and fees associated with any elected launch services, is recognized ratably over the subscription term, which is typically one year, beginning on the date the customer has access to the platform. Managed-service subscriptions offer the

12

customer an outsourced, managed platform experience. Implementation services are included with managed-service subscriptions and are necessary to launch on the platform. Revenue from managed-service subscriptions, including fixed subscription fees and fees associated with implementation services, is recognized ratably over the subscription term, which is typically one year, beginning once implementation services are complete.
As noted above, customers incur variable fees when the GMV processed through Marketplaces, or the GMV or advertising spend processed through Digital Marketing, exceeds the GMV or advertising spend included in their subscriptions. In general, revenue from variable fees is recognized in the period in which the related GMV or advertising spend is processed through the platform.
Other - Other product offerings include the Company's Where to Buy and Product Intelligence solutions, which provide current information on resellers and product availability and insights on product assortment, gaps, and pricing trends. These solutions are only available on a managed-service basis and include implementation services. The Company also enters into integration agreements with certain marketplaces or channels under which the business partner engages the Company to integrate the platform with their marketplace or channel. Revenue from these product offerings is recognized ratably over the subscription term beginning on the date the implementation or integration is complete.
Contracts with Multiple Performance Obligations
Customers may elect to purchase a subscription to multiple modules, multiple modules with multiple service levels, or, for certain of the Company's solutions, multiple brands or geographies. The Company evaluates such contracts to determine whether the services to be provided are distinct and accordingly should be accounted for as separate performance obligations. If the Company determines that a contract has multiple performance obligations, the transaction price, which is the total price of the contract, is allocated to each performance obligation based on a relative standalone selling price method. The Company estimates standalone selling price based on observable prices in past transactions for which the product offering subject to the performance obligation has been sold separately. As the performance obligations are satisfied, revenue is recognized as discussed above in the product descriptions.
Transaction Price Allocated to Future Performance Obligations
As the Company typically enters into contracts with customers for a twelve-month subscription term, substantially all of its performance obligations that have not yet been satisfied as of September 30, 2019 are part of a contract that has an original expected duration of one year or less. For contracts with an original expected duration of greater than one year, the aggregate transaction price allocated to the unsatisfied performance obligations was $26.5 million as of September 30, 2019, of which $15.7 million is expected to be recognized as revenue over the next twelve months.
Deferred Revenue
Deferred revenue represents the unearned portion of subscription and implementation fees. Deferred revenue is recorded when cash payments are received in advance of performance. Deferred amounts are generally recognized within one year. Deferred revenue is included in the accompanying condensed consolidated balance sheets under "Total current liabilities," net of any long-term portion that is included in "Other long-term liabilities." The following table summarizes deferred revenue activity for the nine months ended September 30, 2019 (in thousands):
 
Balance, beginning of period
 
Net additions
 
Revenue recognized
 
Balance, end of period
Deferred revenue
$
24,708

 
92,666

 
(95,184
)
 
$
22,190

Of the $95.2 million of revenue recognized in the nine months ended September 30, 2019, $21.5 million was included in deferred revenue at January 1, 2019.
Costs to Obtain Contracts
The Company capitalizes sales commissions and a portion of other incentive compensation costs that are directly related to obtaining customer contracts and that would not have been incurred if the contract had not been obtained. These costs are included in the accompanying condensed consolidated balance sheets and are classified as "Prepaid expenses and other current assets," net of any long-term portion that is included in "Deferred contract costs, net of current portion." Deferred contract costs are amortized to sales and marketing expense over the expected period of benefit, which the Company has determined to be

13

five years based on the estimated customer relationship period. The following table summarizes deferred contract cost activity for the nine months ended September 30, 2019 (in thousands):
 
Balance, beginning of period
 
Additions
 
Amortized costs (1)
 
Balance, end of period
Deferred contract costs
$
15,209

 
6,044

 
(3,559
)
 
$
17,694

(1) Includes contract costs amortized to sales and marketing expense during the period and the impact from foreign currency exchange rate fluctuations.
7. STOCK-BASED COMPENSATION
The Company recognizes stock-based compensation expense using the accelerated attribution method, net of estimated forfeitures, in which compensation cost for each vesting tranche in an award is recognized ratably from the service inception date to the vesting date for that tranche.
Stock-based compensation expense is included in the following line items in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019 (1)
 
2018
 
2019 (1)
 
2018
Cost of revenue
$
169

 
$
298

 
$
745

 
$
607

Sales and marketing
—

 
1,003

 
1,773

 
2,483

Research and development
454

 
581

 
1,696

 
1,585

General and administrative
178

 
1,092

 
2,786

 
3,348

 
$
801

 
$
2,974

 
$
7,000

 
$
8,023

(1) Stock-based compensation expense for the three and nine months ended September 30, 2019 decreased compared to the prior year periods due primarily to changes in executive management.
During the nine months ended September 30, 2019, the Company granted the following share-based awards:
 
Number of Shares Underlying Grant
 
Weighted Average Grant Date Fair Value
Stock options
554,545

 
$
4.51

Restricted stock units ("RSUs")
1,281,826

 
$
9.90

Total share-based awards
1,836,371

 
$
8.27

8. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is calculated giving effect to all potentially dilutive shares of common stock, including stock options and restricted stock units (RSUs). The dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method.
The following table summarizes the calculation of basic and diluted net income (loss) per share (in thousands, except share and per share data):

14

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Basic:
 
 
 
 
 
 
 
Net income (loss)
$
1,729

 
$
(2,287
)
 
$
(1,938
)
 
$
(8,208
)
Weighted average common shares outstanding, basic
28,049,199

 
27,294,134

 
27,824,696

 
27,073,332

Basic net income (loss) per share
$
0.06

 
$
(0.08
)
 
$
(0.07
)
 
$
(0.30
)
Diluted:
 
 
 
 
 
 
 
Net income (loss)
$
1,729

 
$
(2,287
)
 
$
(1,938
)
 
$
(8,208
)
Weighted average common shares outstanding, basic
28,049,199

 
27,294,134

 
27,824,696

 
27,073,332

Dilutive effect of:
 
 
 
 
 
 
 
Stock options
169,354

 
—

 
—

 
—

Unvested RSUs
536,126

 
—

 
—

 
—

Weighted average common shares outstanding, diluted
28,754,679

 
27,294,134

 
27,824,696

 
27,073,332

Diluted net income (loss) per share
$
0.06

 
$
(0.08
)
 
$
(0.07
)
 
$
(0.30
)
The following equity instruments have been excluded from the calculation of diluted net income (loss) per share because the effect is anti-dilutive:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Stock options
1,923,938

 
2,289,910

 
2,341,209

 
2,289,910

RSUs
269,552

 
2,312,407

 
2,206,636

 
2,312,407

9. INCOME TAXES
At the end of each interim reporting period, the Company estimates its effective income tax rate expected to be applicable for the full year. This estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.
The Company's effective tax rate was 11.0% and (9.0)% for the three months ended September 30, 2019 and 2018, respectively, and (41.9)% and (5.6)% for the nine months ended September 30, 2019 and 2018, respectively. The tax expense for each of the periods was based on state, local and foreign taxes. The Company’s effective tax rate for these periods is lower than the U.S. federal statutory rate of 21% primarily due to operating losses which are subject to a valuation allowance. The Company cannot recognize the tax benefit of operating loss carryforwards generated in certain jurisdictions due to uncertainties relating to future taxable income in those jurisdictions in terms of both its timing and its sufficiency, which would enable the Company to realize the benefits of those carryforwards. The change in the effective tax rate for the three months ended September 30, 2019 compared with the same period in the prior year is primarily due to the shift from pre-tax loss for the three month period in 2018 to pre-tax income for the three month period in 2019. The change in the effective tax rate for the nine months ended September 30, 2019 compared with the same period in the prior year is primarily due to the decrease in pre-tax loss from the nine month period in 2018 to the nine month period in 2019. In addition, the change in the effective tax rate for both the three and nine month periods was partially due to a tax benefit recorded in 2018 attributable to the reduction of a "hanging" deferred tax liability for an indefinite-lived intangible asset. The Company utilized the "hanging" deferred tax liability to recognize a portion of the deferred tax asset for the indefinite-lived U.S. federal operating loss carryforward generated in the 2018 tax year, with the balance of the U.S. federal operating loss carryforward deferred tax asset being offset by a valuation allowance.
The Tax Cuts and Jobs Act of 2017 ("Tax Act"), which went into effect on December 22, 2017, significantly revises the Internal Revenue Code of 1986, as amended. The Tax Act contains, among other things, significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), repeal of the alternative minimum tax, limitation of the deduction for net operating losses to 80% of current year taxable income, indefinite net operating loss carryforward period and elimination of net operating loss carrybacks, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, creation of the base erosion anti-abuse tax, the global intangible low taxed income inclusion,

15

which the Company accounts for as a period cost, the foreign derived intangible income deduction and modification or repeal of many business deductions and credits.
As of September 30, 2019, the IRS is still in the process of issuing guidance to taxpayers to address changes enacted in the Tax Act. The Company has prepared the income tax provision for the three and nine months ended September 30, 2019 based on available guidance. However, if final guidance is issued that modifies the existing temporary guidance issued by the IRS or if the final guidance contradicts positions taken by the Company in the absence of any IRS guidance, this could have a material impact on the Company's consolidated financial statements.
10. RESTRUCTURING
In the third quarter of 2019, the Company implemented a plan ("2019 Actions") to reduce its expenses and align its operations with evolving business needs. As part of this strategic initiative, the Company reduced its global workforce by approximately 10% and discontinued its physical operations in China. As a result of the implementation of the 2019 Actions, the Company recognized severance and related costs of $1.0 million during the three and nine months ended September 30, 2019.

11. SEGMENT AND GEOGRAPHIC INFORMATION
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker ("CODM") for purposes of allocating resources and evaluating financial performance. The Company's CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. As such, the Company's operations constitute a single operating segment and one reportable segment.
Substantially all assets were held in the United States during the nine months ended September 30, 2019 and the year ended December 31, 2018. The following table summarizes revenue by geography for the three and nine months ended September 30, 2019 and 2018 (in thousands). The Company categorizes domestic and international revenue from customers based on their billing address.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Domestic
 
$
23,551

 
$
24,476

 
$
71,120

 
$
74,013

International
 
8,127

 
7,848

 
24,064

 
22,416

Total revenue
 
$
31,678

 
$
32,324

 
$
95,184

 
$
96,429


16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
 
Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions, or the negative of such words or phrases, are intended to identify "forward-looking statements." We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. These forward-looking statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II – Item 1A, "Risk Factors," and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the year ended December 31, 2018, which are included in our Annual Report on Form 10-K for fiscal 2018.
We are a leading provider of software-as-a-service, or SaaS, solutions and our mission is to connect and optimize the world's commerce. Our proprietary e-commerce cloud platform, which is accessed through a standard web browser, helps brands and retailers worldwide improve their online performance by expanding sales channels, connecting with consumers around the world, optimizing their operations for peak performance and providing actionable analytics to improve competitiveness. More specifically, our suite of solutions allows our customers to manage their product listings, inventory availability, pricing optimization, search terms, orders and fulfillment, and other critical functions across these channels. Our customers utilize our platform to connect with new and existing sources of demand for their products through channels such as Amazon, eBay, Facebook, Google and Walmart. Our fulfillment solution makes it easier for customers to connect to their supply chain, which could include distributors, manufacturers and third-party logistics providers. We also offer solutions that allow brands to send their web visitors or digital marketing audiences directly to authorized resellers and to gain insight into consumer behavior. Overall, our platform delivers significant breadth, scalability and flexibility.
We serve customers across a wide range of industries and geographies. Our customers include the online businesses of brands and retailers, as well as advertising agencies that use our solutions on behalf of their clients.
EXECUTIVE OVERVIEW
 
 
 
 
 
 
 
 
 
 
FINANCIAL RESULTS
•
Total revenue of $31.7 million and $95.2 million for the three and nine months ended September 30, 2019 decreased 2.0% and 1.3%, respectively, from the comparable prior year periods;
•
Average revenue per customer of $47,005 for the twelve months ended September 30, 2019 increased 2.0% compared with $46,073 for the twelve months ended September 30, 2018;
•
Revenue was comprised of 81.5% and 18.5% fixed and variable subscription fees, respectively, for the three months ended September 30, 2019 compared with fixed and variable subscription fees of 79.5% and 20.5%, respectively, for the three months ended September 30, 2018;
•
Revenue was comprised of 80.9% and 19.1% fixed and variable subscription fees, respectively, for the nine months ended September 30, 2019 compared with fixed and variable subscription fees of 77.2% and 22.8%, respectively, for the nine months ended September 30, 2018;

17
Table of Contents

•
Revenue derived from customers located outside of the United States as a percentage of total revenue was 25.7% and 25.3% for the three and nine months ended September 30, 2019, respectively, compared with 24.3% and 23.2%, respectively, for the comparable prior year periods;
•
Gross margin of 77.1% and 77.0% for the three and nine months ended September 30, 2019, respectively, improved by 60 basis points and declined by 30 basis points, respectively, compared with 76.5% and 77.3% for the comparable prior year periods;
•
Operating margin of 5.6% and (2.0)% for the three and nine months ended September 30, 2019, respectively, improved by 1250 and 640 basis points, respectively, compared with (6.9)% and (8.4)% for the comparable prior year periods;
•
Net income (loss) of $1.7 million and $(1.9) million for the three and nine months ended September 30, 2019, respectively, improved compared with net loss of $(2.3) million and $(8.2) million, respectively, for the comparable prior year periods;
•
Adjusted EBITDA, a non-GAAP measure, of $5.2 million and $10.8 million for the three and nine months ended September 30, 2019, respectively, increased 124.2% and 145.1%, respectively, compared with adjusted EBITDA of $2.3 million and $4.4 million for the comparable prior year periods;
•
Cash and cash equivalents was $48.2 million at September 30, 2019 compared with $47.2 million at December 31, 2018;
•
Operating cash flow was $7.5 million for the nine months ended September 30, 2019 compared with $1.1 million for the nine months ended September 30, 2018; and
•
Free cash flow, a non-GAAP measure, was $4.8 million for the nine months ended September 30, 2019 compared with $(1.1) million for the nine months ended September 30, 2018.
TRENDS IN OUR BUSINESS
The following trends have contributed to the results of our consolidated operations, and we anticipate that they will continue to impact our future results:
•
Growth in Online Shopping. Consumers continue to move more of their retail spending from offline to online retail. The continuing shift to online shopping and overall growth has contributed to our historical growth and we expect that this online shift will continue to benefit our business.
•
Product Offering Expansion. As online shopping evolves, we continue to expand our product offerings to reflect the needs of companies seeking to attract consumers. We continue to enhance our product offering by increasing online shopping channel integrations, including marketplace and first-party retail programs, providing capabilities that allow customers to be more competitive, including support for advertising, advanced repricing and machine learning based demand forecasting and improving our analytics capabilities, fulfillment features and user experience.
•
Growth in Mobile Usage. We believe the shift toward mobile commerce will increasingly favor aggregators such as Amazon, eBay, Google and Walmart, all of which are focal points of our platform. These systems understand the identity of the buyer, helping to reduce friction in the mobile commerce process, while offering a wide selection of merchandise in a single location. The growth in mobile commerce may result in increased revenue for us.
•
Shift to Larger Customers Through Our Direct Sales Channel. We believe that the growth in online shopping increasingly favors larger enterprises. This move impacts our business both in longer sales cycles as well as increased average revenue per customer.
•
Evolving Fulfillment Landscape. Consumers have been conditioned to expect fast, efficient delivery of products. We believe that determining and executing on a strategy to more expeditiously receive, process and deliver online orders, which we refer to collectively as fulfillment, is critical to success for online sellers. Therefore, it will be increasingly important for us to facilitate and optimize fulfillment services on behalf of our customers, which in turn may result in additional research and development investment.
•
Focus on Employees. We strive to provide competitive compensation and benefits programs to help attract and retain employees who are focused on facilitating the success of our customers.
•
Seasonality. Our revenue fluctuates as a result of seasonal variations in our business, principally due to the peak consumer demand and related increased volume of our customers' GMV during the year-end holiday season. As a result, we have historically had higher revenue in our fourth quarter than other quarters due to increased GMV processed through our platform, resulting in higher variable subscription fees.

18
Table of Contents

OPPORTUNITIES AND RISKS
•
Dynamic E-commerce Landscape. We need to continue to innovate in the face of a rapidly changing e-commerce landscape if we are to remain competitive.
•
Brands and Retailers. As consumer preferences potentially shift from smaller retailers, we need to continue to add brands and large retailers as profitable customers. These customers generally pay a lower percentage of GMV as fees to us based on the relatively higher volume of their GMV processed through our platform. To help drive our future growth, we have made significant investments in our sales force and allocated resources focused on growing our customer base of brands and large retailers. We continue to focus our efforts on increasing value for our customers to support higher rates.
•
Strategic Partnerships. Our business development team's mission is to expand our sales and market opportunities through strategic partner relationships. We plan to continue to invest in initiatives to expand our strategic partnership base to further enhance our offerings for brands and retailers.
•
Increasing Complexity of E-commerce. Although e-commerce continues to expand as brands and retailers continue to increase their online sales, it is also becoming more complex due to the hundreds of channels available to brands and retailers and the rapid pace of change and innovation across those channels. In order to gain consumers' attention in a more crowded and competitive online marketplace, an increasing number of brands and many retailers sell their merchandise through multiple online channels, each with its own rules, requirements and specifications. In particular, third-party marketplaces are an increasingly important driver of growth for a number of brands and large online retailers. As a result, we need to continue to support multiple channels in a variety of geographies in order to support our targeted revenue growth.
•
Global Growth in E-commerce. We believe the growth in e-commerce globally presents an opportunity for brands and retailers to engage in international sales. However, country-specific marketplaces are often the market share leaders in their regions, as is the case for Alibaba in Asia. In order to help our customers capitalize on this potential market opportunity, and to address our customers’ needs with respect to cross-border trade, we intend to continue to invest in our international operations. Doing business overseas involves substantial challenges, including management attention and resources needed to adapt to multiple languages, cultures, laws and commercial infrastructure, as further described in this report under the caption "Risks Related to our International Operations."
Our senior management continuously focuses on these and other trends and challenges, and we believe that our culture of innovation and our history of growth and expansion will contribute to the success of our business. We cannot, however, assure you that we will be successful in addressing and managing the many challenges and risks that we face.


19
Table of Contents

KEY FINANCIAL AND OPERATING METRICS
 
 
 
 
 
 
 
 
 
 
CHART-B055CA59500951ABB49.JPG
The average revenue generated per customer is a primary determinant of our revenue. We calculate this metric by dividing our revenue for a particular period by the average monthly number of customers during the period, which is calculated by taking the sum of the number of customers at the end of each month in the period and dividing by the number of months in the period. We typically calculate average revenue per customer in absolute dollars on a trailing twelve-month, or TTM, basis, but we may also calculate percentage changes in average revenue per customer on a quarterly basis in order to help us evaluate our period-over-period performance. For purposes of this metric and the number of customers metric described below, we include all customers who subscribe to at least one of our solutions, as well as strategic partners from which we receive revenue.
CHART-2A519D1EA234584E972.JPG
The number of customers decreased as of the third quarter of 2019 compared to the third quarter of 2018. We continue our focus on obtaining brands and large retailers as customers, which may represent a smaller number of total customers, but a potentially larger source of predictable or sustainable recurring revenue.

 
CHART-6F719F7999145A30807.JPG
Adjusted EBITDA represents our earnings before interest (income) expense, income tax expense and depreciation and amortization, adjusted to eliminate stock-based compensation expense, which is a non-cash item, and, for the three and nine months ended September 30, 2019 only, non-recurring severance and related costs. We believe that adjusted EBITDA provides useful information to management and others in understanding and evaluating our operating results. However, adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP and should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with U.S. GAAP. In addition, adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted EBITDA in the same manner that we do. Please refer to "Adjusted EBITDA" below for a discussion of the limitations of adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most comparable U.S. GAAP measurement.


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Adjusted EBITDA
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•
adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;
•
adjusted EBITDA does not reflect interest or income tax payments that may represent a reduction in cash available to us; and
•
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these and other limitations, you should consider adjusted EBITDA together with U.S. GAAP-based financial performance measures, including various cash flow metrics, net loss and our other U.S. GAAP results. The following table presents a reconciliation of net income (loss) to adjusted EBITDA for each of the periods indicated (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
1,729

 
$
(2,287
)
 
$
(1,938
)
 
$
(8,208
)
Adjustments:

 

 
 
 
 
Interest (income) expense, net
(205
)
 
(120
)
 
(599
)
 
(351
)
Income tax expense
213

 
188

 
572

 
435

Depreciation and amortization expense
1,664

 
1,550

 
4,806

 
4,509

Total adjustments
1,672

 
1,618

 
4,779

 
4,593

EBITDA
3,401

 
(669
)
 
2,841

 
(3,615
)
Stock-based compensation expense
801

 
2,974

 
7,000

 
8,023

Non-recurring severance and related costs
965

 
—

 
965

 
—

Adjusted EBITDA
$
5,167

 
$
2,305

 
$
10,806

 
$
4,408



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RESULTS OF OPERATIONS
 
 
 
 
 
 
 
 
 
 
The following tables set forth our condensed consolidated statement of operations data and such data expressed as a percentage of revenues for each of the periods indicated.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Period-to-Period Change 
 
Period-to-Period Change 
 
2019
 
2018
 
2019
 
2018
 
Q3 2019 to Q3 2018
 
YTD 2019 to YTD 2018
(dollars in thousands)
 
 
 
 
Revenue
$
31,678

 
$
32,324

 
$
95,184

 
$
96,429

 
$
(646
)
(2.0
)%
 
$
(1,245
)
(1.3
)%
Cost of revenue
7,251

 
7,606

 
21,876

 
21,934

 
(355
)
(4.7
)
 
(58
)
(0.3
)
Gross profit
24,427

 
24,718

 
73,308

 
74,495

 
(291
)
(1.2
)
 
(1,187
)
(1.6
)
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
12,403

 
14,921

 
40,808

 
45,785

 
(2,518
)
(16.9
)
 
(4,977
)
(10.9
)
Research and development
4,803

 
5,350

 
15,161

 
16,989

 
(547
)
(10.2
)
 
(1,828
)
(10.8
)
General and administrative
5,440

 
6,688

 
19,272

 
19,847

 
(1,248
)
(18.7
)
 
(575
)
(2.9
)
Total operating expenses
22,646

 
26,959

 
75,241

 
82,621

 
(4,313
)
(16.0
)
 
(7,380
)
(8.9
)
Income (loss) from operations
1,781

 
(2,241
)
 
(1,933
)
 
(8,126
)
 
4,022

179.5

 
6,193

76.2

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income (expense), net
205

 
120

 
599

 
351

 
85

70.8

 
248

70.7

Other income (expense), net
(44
)
 
22

 
(32
)
 
2

 
(66
)
*

 
(34
)
*

Total other income (expense)
161

 
142

 
567

 
353

 
19

13.4

 
214

60.6

Income (loss) before income taxes
1,942

 
(2,099
)
 
(1,366
)
 
(7,773
)
 
4,041

192.5

 
6,407

82.4

Income tax expense
213

 
188

 
572

 
435

 
25

13.3

 
137

31.5

Net income (loss)
$
1,729

 
$
(2,287
)
 
$
(1,938
)
 
$
(8,208
)
 
$
4,016

175.6
 %
 
$
6,270

76.4
 %
* Not meaningful

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Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(as a percentage of revenue)

 
(as a percentage of revenue)

Revenue
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of revenue
22.9

 
23.5

 
23.0

 
22.7

Gross profit
77.1

 
76.5

 
77.0

 
77.3

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
39.2

 
46.2

 
42.9

 
47.5

Research and development
15.2

 
16.6

 
15.9

 
17.6

General and administrative
17.2

 
20.7

 
20.2

 
20.6

Total operating expenses
71.5

 
83.4

 
79.0

 
85.7

Income (loss) from operations
5.6

 
(6.9
)
 
(2.0
)
 
(8.4
)
Other income (expense):
 
 
 
 
 
 
 
Interest income (expense), net
0.6

 
0.4

 
0.6

 
0.4

Other income (expense), net
(0.1
)
 
0.1

 
0.0

 
0.0

Total other income (expense)
0.5

 
0.4

 
0.6

 
0.4

Income (loss) before income taxes
6.1

 
(6.5
)
 
(1.4
)
 
(8.1
)
Income tax expense
0.7

 
0.6

 
0.6

 
0.5

Net income (loss)
5.5
 %
 
(7.1
)%
 
(2.0
)%
 
(8.5
)%
Depreciation and Amortization
Depreciation and amortization expense is included in the following line items in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Cost of revenue
$
1,046

 
$
919

 
$
2,947

 
$
2,671

Sales and marketing
205

 
224

 
607

 
658

Research and development
94

 
92

 
277

 
280

General and administrative
319

 
315

 
975

 
900

Total depreciation and amortization expense
$
1,664

 
$
1,550

 
$
4,806

 
$
4,509



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REVENUE
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We derive the majority of our revenue from subscription fees paid to us by our customers for access to and usage of our SaaS solutions for a specified contract term, which is usually one year. A portion of the subscription fee is typically fixed and based on a specified minimum amount of GMV or advertising spend that a customer expects to process through our platform. The remaining portion of the subscription fee is variable and is based on a specified percentage of GMV or advertising spend processed through our platform in excess of the customer's specified minimum GMV or advertising spend amount. In most cases, the specified percentage of excess GMV or advertising spend on which the variable portion of the subscription is based is fixed and does not vary depending on the amount of the excess. We also receive implementation fees, which may include fees for providing launch assistance and training.

Because our customer contracts generally contain both fixed and variable pricing components, changes in GMV between periods do not translate directly or linearly into changes in our revenue. We use customized pricing structures for each of our customers depending upon the individual situation of the customer. For example, some customers may commit to a higher specified minimum GMV amount per month in exchange for a lower fixed percentage fee on that committed GMV. In addition, the percentage fee assessed on the variable GMV in excess of the committed minimum for each customer is typically higher than the fee on the fixed, committed portion. As a result, our overall revenue could increase or decrease even without any change in overall GMV between periods, depending on which customers generated the GMV. In addition, changes in GMV from month to month for any individual customer that are below the specified minimum amount would have no effect on our revenue from that customer, and each customer may alternate between being over the committed amount or under it from month to month. For these reasons, while GMV is an important qualitative and long-term directional indicator, we do not regard it as a useful quantitative measurement of our historic revenues or as a predictor of future revenues.

CHART-6E4F353F00F05F428C2.JPG

 
We recognize fixed subscription fees and implementation fees ratably over the contract period beginning on the date the customer has access to the software. In determining the amount of revenue to be recognized, we apply the following steps:
•
Identify the promised services in the contract;
•
Determine whether the promised services are performance obligations, including whether they are distinct in the context of the contract;
•
Determine the transaction price;
•
Allocate the transaction price to the performance obligations based on estimated selling prices; and
•
Recognize revenue as we satisfy each performance obligation.
We generally invoice our customers for the fixed portion of the subscription fee in advance, in monthly, quarterly, semi-annual or annual installments. We invoice our customers for the implementation fee at the inception of the arrangement. Fixed subscription and implementation fees that have been invoiced are initially recorded as deferred revenue and are generally recognized ratably over the contract term.
In general, we invoice and recognize revenue from the variable portion of subscription fees in the period in which the related GMV or advertising spend is processed.


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Comparison of Q3 2019 to Q3 2018
Revenue decreased by 2.0%, or $0.6 million, to $31.7 million for the three months ended September 30, 2019 compared with $32.3 million for the prior year period. The change was primarily due to a $0.8 million decline in variable revenue, primarily associated with strategic partners, some of which have moved partially to a fixed pricing model. This decrease was partially offset by a $0.1 million increase in fixed revenue, primarily from our Digital Marketing solution.
On a trailing three-month basis, average revenue per customer increased by 2.1% to $11,717 for the three months ended September 30, 2019 compared with $11,472 for the three months ended September 30, 2018. The increase in average revenue per customer was primarily driven by our continued focus on obtaining brands and large retailers as customers, which may represent a smaller number of total customers, but a potentially larger source of predictable or sustainable recurring revenue.
Comparison of YTD 2019 to YTD 2018
Revenue decreased by 1.3% or $1.2 million, to $95.2 million for the nine months ended September 30, 2019 compared with $96.4 million for the prior year period. The change was primarily due to a $3.8 million decline in variable revenue, primarily associated with strategic partners, some of which have moved partially to a fixed pricing model. This decrease was partially offset by a $2.5 million increase in fixed revenue from our Digital Marketing solution.
On a trailing nine-month basis, average revenue per customer increased by 2.1% to $34,736 for the nine months ended September 30, 2019 compared with $34,034 for the nine months ended September 30, 2018. The increase in average revenue per customer was primarily driven by our continued focus on obtaining brands and large retailers as customers, which may represent a smaller number of total customers, but a potentially larger source of predictable or sustainable recurring revenue.

COST OF REVENUE
CHART-8EB986834AD05E389FA.JPG
 
Cost of revenue primarily consists of:
•
Salaries and personnel-related costs for employees providing services to our customers and supporting our platform infrastructure, including benefits, bonuses and stock-based compensation;
•
Co-location facility costs for our data centers;
•
Infrastructure maintenance costs; and
•
Fees we pay to credit card vendors in connection with our customers' payments to us.
Comparison of Q3 2019 to Q3 2018
Cost of revenue decreased by 4.7%, or $0.4 million, to $7.3 million for the three months ended September 30, 2019 compared with $7.6 million for the prior year period. The change was comprised primarily of (decreases) increases of:
•
$(0.6) million in compensation and employee-related costs, including stock-based compensation expense, due to reductions in headcount, primarily as a result of the 2019 Actions; partially offset by
•
$0.2 million in non-recurring severance and related costs in connection with the 2019 Actions.
Comparison of YTD 2019 to YTD 2018
Cost of revenue decreased by 0.3%, or $0.1 million, to $21.9 million for the nine months ended September 30, 2019 compared with $21.9 million for the prior year period. The change was comprised primarily of (decreases) increases of:
•
$(0.4) million in compensation and employee-related costs due to reductions in headcount, primarily as a result of the 2019 Actions; partially offset by
•
$0.2 million in non-recurring severance and related costs in connection with the 2019 Actions.

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OPERATING EXPENSES
SALES AND MARKETING EXPENSE
CHART-2F3014600DBE5504876.JPG
 
Sales and marketing expense consists primarily of:
•
Salaries and personnel-related costs for our sales and marketing and customer support employees, including benefits, bonuses and stock-based compensation;
•
Amortization of capitalized sales commissions and related incentive payments over their expected term of benefit;
•
Marketing, advertising and promotional event programs; and
•
Corporate communications.
Comparison of Q3 2019 to Q3 2018
Sales and marketing expense decreased by 16.9%, or $2.5 million, to $12.4 million for the three months ended September 30, 2019 compared with $14.9 million for the prior year period. The change was comprised primarily of (decreases) increases of:
•
$(2.6) million in compensation and employee-related costs, including stock-based compensation expense, due to reductions in headcount, primarily as a result of the 2019 Actions; partially offset by
•
$0.4 million in non-recurring severance and related costs in connection with the 2019 Actions.
Comparison of YTD 2019 to YTD 2018
Sales and marketing expense decreased by 10.9%, or $5.0 million, to $40.8 million for the nine months ended September 30, 2019 compared with $45.8 million for the prior year period. The change was comprised primarily of (decreases) increases of:
•
$(3.6) million in compensation and employee-related costs, including stock-based compensation expense, due to reductions in headcount, primarily as a result of the 2019 Actions; and
•
$(1.4) million in our promotional event programs, marketing and advertising and travel, primarily due to reductions in costs associated with our annual e-commerce conference; partially offset by
•
$0.4 million in non-recurring severance and related costs in connection with the 2019 Actions.
RESEARCH AND DEVELOPMENT EXPENSE
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Research and development expense consists primarily of:
•
Salaries and personnel-related costs for our research and development employees, including benefits, bonuses and stock-based compensation; and
•
Costs related to the development, quality assurance and testing of new technology and enhancement of our existing platform technology.

Comparison of Q3 2019 to Q3 2018
Research and development expense decreased by 10.2%, or $0.5 million, to $4.8 million for the three months ended September 30, 2019 compared with $5.4 million for the prior year period. The change was comprised primarily of
(decreases) increases of:

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•
$(0.4) million in compensation and employee-related costs, mainly due to an increase in capitalized employee-related costs attributable to software development to support the enhancement of our product offerings; and
•
$(0.4) million in compensation and employee-related costs, including stock-based compensation expense, due to reductions in headcount, primarily as a result of the 2019 Actions; partially offset by
•
$0.1 million in non-recurring severance and related costs in connection with the 2019 Actions.

Comparison of YTD 2019 to YTD 2018
Research and development expense decreased by 10.8%, or $1.8 million, to $15.2 million for the nine months ended September 30, 2019 compared with $17.0 million for the prior year period. The change was comprised primarily of (decreases) increases of:
•
$(1.4) million in compensation and employee-related costs, mainly due to an increase in capitalized employee-related costs attributable to software development to support the enhancement of our product offerings; and
•
$(0.6) million in compensation and employee-related costs due to reductions in headcount, primarily as a result of the 2019 Actions; partially offset by
•
$0.1 million in non-recurring severance and related costs in connection with the 2019 Actions.
GENERAL AND ADMINISTRATIVE EXPENSE
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General and administrative expense consists primarily of:
•
Salaries and personnel-related costs for administrative, finance and accounting, information systems, legal and human resource employees, including benefits, bonuses and stock-based compensation;
•
Consulting and professional fees;
•
Insurance;
•
Bad debt expense; and
•
Costs associated with compliance with the Sarbanes-Oxley Act and other regulations governing public companies.
Comparison of Q3 2019 to Q3 2018
General and administrative expense decreased by 18.7%, or $1.2 million, to $5.4 million for the three months ended September 30, 2019 compared with $6.7 million for the prior year period. The change was comprised primarily of (decreases) increases of:
•
$(1.3) million in compensation and employee-related costs, including stock-based compensation expense, due to reductions in headcount, primarily as a result of the 2019 Actions; partially offset by
•
$0.2 million in non-recurring severance and related costs in connection with the 2019 Actions.
Comparison of YTD 2019 to YTD 2018
General and administrative expense decreased by 2.9%, or $0.6 million, to $19.3 million for the nine months ended September 30, 2019 compared with $19.8 million for the prior year period. The change was comprised primarily of (decreases) increases of:
•
$(0.6) million in compensation and employee-related costs, including stock-based compensation expense, due to reductions in headcount, primarily as a result of the 2019 Actions; and
•
$(0.5) million in professional fees in connection with the assessment by our independent auditors of the effectiveness of our internal control over financial reporting, which was required for the first time as part of our Annual Report on Form 10-K for fiscal 2018, and our implementation of the new revenue recognition standard in 2018; partially offset by
•
$0.5 million in executive severance costs in connection with changes in management; and
•
$0.2 million in non-recurring severance and related costs in connection with the 2019 Actions.

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Table of Contents

GROSS AND OPERATING MARGINS
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Comparison of Q3 2019 to Q3 2018
Gross margin improved by 60 basis points to 77.1% during the three months ended September 30, 2019 compared with 76.5% for the prior year period as a result of the decrease in cost of revenue, noted above, which exceeded the rate of the decrease in revenue.
Operating margin improved by 1250 basis points to 5.6% during the three months ended September 30, 2019 compared with (6.9)% for the prior year period due to decreases in operating expenses and cost of revenue of 16.0% and 4.7%, respectively. Our improved operating margin was a result of the 2019 Actions and our continuing strategic efforts to scale our business operations while managing costs.
Comparison of YTD 2019 to YTD 2018
Gross margin declined by 30 basis points to 77.0% during the nine months ended September 30, 2019 compared with 77.3% for the prior year period as a result of the decrease in revenue which exceeded the decrease in cost of revenue, noted above.
Operating margin improved by 640 basis points to (2.0)% during the nine months ended September 30, 2019 compared with (8.4)% for the prior year period due to decreases in operating expenses and cost of revenue of 8.9% and 0.3%, respectively. Our improved operating margin was a result of the 2019 Actions and our continuing strategic efforts to scale our business operations while managing costs.


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Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
 
 
 
 
 
 
 
 
 
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, and to the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Except for our adoption of ASC 842, during the nine months ended September 30, 2019, there were no material changes to our critical accounting policies and use of estimates, which are disclosed in our audited consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K for fiscal 2018. Refer to Note 5, "Leases," to our condensed consolidated financial statements included in this report for a description of changes to our lease accounting policies as a result of our adoption of ASC 842 as of January 1, 2019.
Recent Accounting Pronouncements
Refer to Note 2, "Significant Accounting Policies," to our condensed consolidated financial statements included in this report for a full description of recent accounting pronouncements.
LIQUIDITY AND CAPITAL RESOURCES
 
 
 
 
 
 
 
 
 
 
We derive our liquidity and operating capital primarily from cash flows from operations. Based on our current level of operations and anticipated growth, we believe our future cash flows from operating activities and our existing cash balances will be sufficient to meet our cash requirements for at least the next twelve months.
CASH FLOWS
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Free Cash Flow
We view free cash flow as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. Free cash flow is a non-U.S. GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. GAAP. The following table presents a reconciliation of cash provided by operating activities, the most directly comparable U.S. GAAP measure, to free cash flow for each of the periods indicated (in thousands):

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Table of Contents

 
Nine Months Ended September 30,
 
2019
 
2018
Cash and cash equivalents provided by operating activities

$
7,514

 
$
1,102

Less: Purchases of property and equipment
(755
)
 
(1,586
)
Less: Payment of software development costs
(1,972
)
 
(579
)
Free cash flow
$
4,787

 
$
(1,063
)
Free cash flow increased by $5.9 million to $4.8 million for the nine months ended September 30, 2019 compared with $(1.1) million for the prior year period. The increase in free cash flow was a result of lower operating expenses, primarily related to the 2019 Actions, improved cash collections and changes in assets and liabilities, which are further described below.
Operating activities cash flows are largely driven by:
•
The amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business;
•
The amount and timing of customer payments;
•
The seasonality of our business, as noted above, which results in variations in the timing of invoicing and the receipt of payments from our customers;
•
In 2018, the amount we paid in settlement of a sales tax audit; and
•
In 2019, the amount we paid in non-recurring severance and related costs in connection with the 2019 Actions.
Investing activities cash flows are largely driven by:
•
Capitalized expenditures to create internally developed software and implement software purchased for internal use; and
•
Purchases of property and equipment to support the expansion of our infrastructure and acquisitions.
Financing activities cash flows are largely driven by:
•
Proceeds from the exercises of stock options;
•
Payments on finance lease obligations; and
•
Tax withholdings related to the net-share settlement of restricted stock units.
YTD 2019
Operating Activities
Our cash provided by operating activities consisted of a net loss of $1.9 million adjusted for certain non-cash items totaling $13.3 million, which consisted of stock-based compensation expense, depreciation and amortization expense, bad debt expense and other non-cash items.
The net decrease in cash resulting from changes in assets and liabilities of $(3.8) million primarily consisted of:
•
a $2.7 million increase in deferred contract costs consisting of sales commissions and a portion of other incentive compensation that is deferred and amortized to expense over the expected period of benefit;
•
a $2.3 million decrease in deferred revenue as a result of the timing of revenue recognition for managed-service contracts; and
•
a $2.1 million decrease in accounts payable and accrued expenses driven by the timing of payments to our vendors during the period and payments for certain customer arrangements for which we collect and remit monthly activity-based fees incurred for specific channels on behalf of our customers (referred to as "agency of record" activities). These decreases in cash were partially offset by increases in cash due to
•
a $2.3 million decrease in prepaid expenses and other assets, primarily related to agency of record receipts (we record the amounts due from customers as a result of these arrangements as other receivables); and
•
a $1.0 million decrease in accounts receivable as a result of increased cash collections during the period.
Investing Activities
Our cash used in investing activities consisted of:
•
$2.0 million of capitalized software development costs; and
•
$0.8 million of capital expenditures primarily related to the purchase of computer equipment.

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Table of Contents

Financing Activities
Our cash used in financing activities consisted of:
•
$2.4 million used for the repayment of finance leases; and
•
$2.1 million used for the payment of taxes related to the net-share settlement of restricted stock units; partially offset by
•
$1.0 million in cash received upon the exercise of stock options.
YTD 2018
Operating Activities
Our cash provided by operating activities consisted of a net loss of $8.2 million adjusted for certain non-cash items totaling $13.3 million, which consisted of stock-based compensation expense, depreciation and amortization expense, bad debt expense and other non-cash items.
The net decrease in cash resulting from changes in assets and liabilities of $(4.0) million primarily consisted of:
•
an $11.2 million decrease in accounts payable and accrued expenses driven by the timing of payments to our vendors during the period and a $1.0 million payment in 2018 to settle a sales tax audit;
•
a $5.3 million increase in deferred contract costs consisting of sales commissions and a portion of other incentive compensation that is deferred and amortized to expense over the expected period of benefit; and
•
a $2.5 million net decrease in deferred revenue as a result of our adoption of ASC 606 and the timing of revenue recognition for managed-service contracts. These decreases in cash were partially offset by increases in cash due to
•
a $10.6 million decrease in prepaid expenses and other assets, primarily related to agency of record receipts (we record the amounts due from customers as a result of these arrangements as other receivables); and
•
a $4.5 million decrease in accounts receivable as a result of increased cash collections during the period.
Investing Activities
Our cash used in investing activities consisted of:
•
$1.6 million of capital expenditures primarily related to the purchase of computer equipment; and
•
$0.6 million of capitalized software development costs.
Financing Activities
Our cash used in financing activities consisted of:
•
$2.1 million used for the repayment of finance leases; and
•
$2.1 million used for the payment of taxes related to the net-share settlement of restricted stock units; partially offset by
•
$1.1 million in cash received upon the exercise of stock options.
Off-Balance Sheet Arrangements
As of September 30, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission, or SEC, Regulation S-K.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 
 
 
 
 
 
 
 
 
Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We are exposed to market risk related to changes in foreign currency exchange rates. We do not use derivative financial instruments for speculative, hedging or trading purposes, although in the future we may enter into exchange rate hedging arrangements to manage foreign currency exchange risk. During the nine months ended September 30, 2019, there were no material changes to our market risks from those disclosed in our Annual Report on Form 10-K for fiscal 2018.
ITEM 4. CONTROLS AND PROCEDURES
 
 
 
 
 
 
 
 
 
 
(a) Evaluation of Disclosure Controls and Procedures
The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2019, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date at the reasonable assurance level.
(b) Changes in Internal Control Over Financial Reporting
Except for the implementation of certain internal controls related to our adoption of ASC 842, there have not been any changes in our internal control over financial reporting during our fiscal quarter ended September 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented certain internal controls to ensure that we properly assessed the impact of ASC 842 on our financial statements to facilitate our adoption of the standard effective as of January 1, 2019.

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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
 
 
 
 
 
 
 
 
 
 
From time to time, we are subject to litigation and claims arising in the ordinary course of business, but we are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.
ITEM 1A. RISK FACTORS
 
 
 
 
 
 
 
 
 
 
Our business is subject to numerous risks. You should carefully consider the following risks, as well as general economic and business risks, and all of the other information contained in this Quarterly Report on Form 10-Q, together with any other documents we file with the SEC. Any of the following risks could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our common stock to decline.
RISKS RELATED TO OUR BUSINESS
We have incurred significant net losses since inception, and it is possible that our operating expenses will increase in the future, which may make it more difficult for us to achieve profitability.
We incurred net losses of $1.9 million and $7.6 million during the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively, and we had an accumulated deficit of $182.2 million as of September 30, 2019. It is possible that our operating expenses will increase in the future. If we are not able to achieve and maintain profitability, the value of our company and our common stock could decline significantly.
A significant portion of our revenue is attributable to sales by our customers on the Amazon and eBay marketplaces and through advertisements on Google. Our inability to continue to integrate our solutions with these channels would make our solutions less appealing to existing and potential new customers and could significantly reduce our revenue.
A substantial majority of the GMV that our customers process through our platform is derived from merchandise sold on the Amazon and eBay marketplaces or advertised on Google, and a similar portion of our variable subscription fees is attributable to sales by our customers through these channels. These channels, and the other channels with which our solutions are integrated, have no obligation to do business with us or to allow us access to their systems, and they may decide at any time and for any reason to significantly curtail or inhibit our ability to integrate our solutions with their channels. Additionally, Amazon, eBay or Google may decide to make significant changes to their respective business models, policies, systems or plans, and those changes could impair or inhibit our customers' ability to use our solutions to sell their products on those channels, or may adversely affect the volume of GMV that our customers can sell on those channels or reduce the desirability of selling on those channels. Further, Amazon, eBay or Google could decide to compete with us more vigorously. Any of these results could cause our customers to reevaluate the value of our products and services and potentially terminate their relationships with us and significantly reduce our revenue.
We may not be able to respond to rapid changes in channel technologies or requirements, which could cause us to lose revenue and make it more difficult to achieve profitability.
The e-commerce market is characterized by rapid technological change and frequent changes in rules, specifications and other requirements for brands and retailers to be able to sell their merchandise on particular channels, as well as developments in technologies that can impede the display and tracking of advertisements. Our ability to retain existing customers and attract new customers depends in large part on our ability to enhance and improve our existing solutions and introduce new solutions that can adapt quickly to these technological changes. To achieve market acceptance for our solutions, we must effectively anticipate and offer solutions that meet frequently changing channel requirements in a timely manner. If our solutions fail to do so, our ability to renew our contracts with existing customers and our ability to create or increase demand for our solutions will be impaired.

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If we are unable to retain our existing customers, our revenue and results of operations could be adversely affected.
We sell our solutions pursuant to contractual arrangements that generally have one-year terms. Therefore, our revenue growth depends to a significant degree upon subscription renewals. Our customers have no obligation to renew their subscriptions after the subscription term expires, and these subscriptions may not be renewed or, if renewed, may not be renewed on the same or more favorable terms for us. We may not be able to accurately predict future trends in customer renewals, and our customers' renewal rates may decline or fluctuate because of several factors, including their satisfaction or dissatisfaction with our solutions, the cost of our solutions, the cost of solutions offered by our competitors and reductions in our customers' spending levels. If our customers do not renew their subscriptions, renew on less favorable terms or for fewer modules, or do not purchase additional modules, our revenue may grow more slowly than expected or decline, and our ability to become profitable may be compromised.
As more of our sales efforts are targeted at larger customers, our sales cycle may become more time-consuming and expensive, and we may encounter pricing pressure, which could harm our business and operating results.
The cost and length of our sales cycle varies by customer. As we target more of our sales efforts at selling to larger customers, we may face greater costs, longer sales cycles and less predictability in completing some of our sales. These types of sales often require us to provide greater levels of education regarding our solutions. In addition, larger customers may demand more training and other professional services. As a result of these factors, these sales opportunities may require us to devote greater sales support and professional services resources to individual customers, driving up costs and time required to complete sales and diverting sales and professional services resources to a smaller number of larger transactions.
We may not be able to compete successfully against current and future competitors. If we do not compete successfully, we could experience lower sales volumes and pricing pressure, which could cause us to lose revenues, impair our ability to pursue our growth strategy and compromise our ability to achieve profitability.
We face intense competition in the market for online channel management solutions and services, and we expect competition to intensify in the future. We have competitors, including some of the channels themselves, with longer operating histories, larger customer bases and greater financial, technical, marketing and other resources than we do. Increased competition may result in reduced pricing for our solutions, longer sales cycles or a decrease in our market share, any of which could negatively affect our revenue and future operating results and our ability to grow our business.
A number of competitive factors could cause us to lose potential sales or to sell our solutions at lower prices or at reduced margins, including:
•
Potential customers may choose to continue using or to develop applications in-house, rather than pay for our solutions;
•
The channels themselves, which typically offer software tools, often for free, that allow brands and retailers to connect to them, may decide to compete more vigorously with us;
•
Competitors may adopt more aggressive pricing policies and offer more attractive sales terms, adapt more quickly to new technologies and changes in customer requirements, and devote greater resources to the promotion and sale of their products and services than we can;
•
Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products and expand their markets, and consolidation in our industry is likely to intensify. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share;
•
Current and potential competitors may offer software that addresses one or more online channel management functions at a lower price point or with greater depth than our solutions and may be able to devote greater resources to those solutions than we can; and
•
Software vendors could bundle channel management solutions with other solutions or offer such products at a lower price as part of a larger product sale.
We may not be able to compete successfully against current and future competitors, including any channels that decide to compete against us more vigorously. In addition, competition may intensify as our competitors raise additional capital and as established companies in other market segments or geographic markets expand into our market segments or geographic markets. If we cannot compete successfully against our competitors, our business and our operating and financial results could be adversely affected.

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If the e-commerce industry consolidates around a limited number of online channels, or if the complexities and challenges faced by brands and retailers seeking to sell online otherwise diminish, demand for our solutions could decline.
Our solutions enable brands and retailers to manage their merchandise sales through hundreds of disparate online channels. One of the key attractions of our solutions to brands and retailers is the ability to help address the complexity and fragmentation of selling online. Although the number and variety of online channels available to brands and retailers have been increasing, at the same time the share of online sales made through a small number of larger channels, particularly Amazon, has also been increasing. If the trend toward consolidation around a few large online channels accelerates, the difficulties faced by brands and retailers could decline, which might make our solutions less important to brands and retailers and could cause demand for our solutions to decline.
Our growth depends in part on the success of our strategic relationships with third parties.
We anticipate that we will continue to depend on our relationships with various third parties, including marketplaces and technology, content and logistics providers, in order to grow our business. Identifying, negotiating and documenting relationships with these third parties may require significant time and resources as does integrating their content and technology with our solutions. If the third-party content or technology integrated with our solutions is not well received by our customers, our brand and reputation could be negatively affected. Our agreements with third-party business partners are typically non-exclusive and do not prohibit them from working with our competitors or from offering competing services. If and to the extent that any of these third parties compete with us, it could hurt our growth prospects.
If the e-commerce market does not grow, or grows more slowly than we expect, particularly on the channels that our solutions support, demand for our online channel management solutions could be adversely affected.
For our existing customers and potential customers to be willing to subscribe to our solutions, the internet must continue to be accepted and widely used for selling merchandise. As e-commerce continues to evolve, regulation by federal, state or foreign agencies may increase. Any regulation imposing greater fees for internet use or restricting information exchanged over the internet could result in a decline in the use of the internet, which could harm our business.
In addition, if consumer utilization of our primary e-commerce channels, such as Amazon, eBay and Google, does not grow or grows more slowly than we expect, demand for our solutions would be adversely affected, our revenue would be negatively impacted and our ability to pursue our growth strategy and become profitable would be compromised.
Software errors, defects or failures or human error could cause our solutions to oversell our customers' inventory or misprice their offerings or could cause other errors, which would hurt our reputation and reduce customer demand.
Complex software applications such as ours may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. Despite our testing and testing by our customers, our current and future products may contain defects. Our customers rely on our solutions to automate the allocation of their inventory simultaneously across multiple online channels, as well as to ensure that their sales comply with the policies of each channel and sometimes to dynamically determine product pricing at any given moment. Some customers subscribe to our solutions on a managed-service basis, in which case our personnel operate our solutions on behalf of the customer. In the event that our solutions do not function properly, or if there is human error on the part of our service staff, errors could occur, including that our customers might inadvertently sell more inventory than they actually have in stock, make sales that violate channel policies or underprice or overprice their offerings. Overselling their inventory could force our customers to cancel orders at rates that violate channel policies. Underpricing would result in lost revenue to our customers and overpricing could result in lost sales. In addition, our pricing policies with our customers are largely based upon our customers' expectations of the levels of their GMV that will be processed through our platform over the term of their agreement with us, and errors in our software or human error could cause transactions to be incorrectly processed that would cause GMV to be in excess of our customers' specified minimum amounts, in which case our variable subscription fee-based revenue could be overstated. Any of these results or other errors could reduce demand for our solutions and hurt our business reputation. Customers could also seek recourse against us in these cases and, while our contractual arrangements with customers typically provide that we are not liable for damages such as these, it is possible that these provisions would not be sufficient to protect us.

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If the use of "cookie" tracking technologies is restricted, regulated or otherwise blocked, or if changes in our industry cause cookies to become less reliable or acceptable as a means of tracking consumer behavior, the amount or accuracy of GMV processed on our platform, and our related revenue, could decrease.
Cookies are small data files that are sent by websites and stored locally on an internet user's computer or mobile device. Our customers enable cookies on their sites and monitor internet user activity, such as viewing pages and completing transactions. We collect data via cookies that we ultimately use to report GMV, which translates to revenue. However, internet users can easily disable, delete and block cookies directly through browser settings or through other software, browser extensions or hardware platforms that physically block cookies from being created and stored.
Third-party cookies are downloaded from domains not associated with the address currently being viewed in an internet user's browser. Cookies can be specifically blocked by browser settings, and, for example, the Safari internet browser blocks third-party cookies by default. Internet users can also download free or paid "ad blocking" software that prevents third-party cookies from being stored on a user's device. On the other hand, first-party cookies are downloaded directly from the address domain of an internet user, and are generally considered safer by privacy concerns. We currently collect data from both first-party and third-party cookie implementations. Our customers currently implementing our third-party cookie solution might be slow to migrate their sites to first-party cookie technologies, which could result in less cookie data that we can collect, and therefore less reported revenue data that we can store.
Privacy regulations might also restrict how our customers deploy our cookies on their sites, and this could potentially increase the number of internet users that choose to proactively disable cookies on their systems. In the European Union, the Directive on Privacy and Electronic Communications requires users to give their consent before cookie data can be stored on their local computer or mobile device. Users can decide to opt out of any cookie data creation, which could negatively impact the revenue we might recognize.
There have been efforts within our industry to replace cookies with alternative tracking technologies. To the extent these efforts are successful, we may have difficulty adapting to those new tracking technologies and we may become dependent on third parties for access to tracking data.
We may have to develop alternative systems to collect user revenue data if users block cookies or regulations introduce barriers to collecting cookie data. In addition, third parties may develop technology or policies to harvest user data including through next-generation web browsers or other means, which could subsequently prevent us from directly importing data to our systems. We may not be able to develop adequate alternatives to cookie data collection, which could negatively impact our ability to reliably measure GMV.
We rely on non-redundant data centers and cloud computing providers to deliver our SaaS solutions. Any disruption of service from these providers could harm our business.
We manage our platform and serve all of our customers from third-party data center facilities and cloud computing providers that are non-redundant, meaning that the data centers and providers are currently not configured as backup for each other. While we engineer and architect the actual computer and storage systems upon which our platform runs, we do not control the operation of the facilities at which they are deployed.
The owners of our data facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to transfer to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.
Any changes in third-party service levels at our data centers or any errors, defects, disruptions or other performance problems with our solutions could harm our reputation and damage our customers' businesses. Interruptions in our services could reduce our revenue, require us to issue credits to customers, subject us to potential liability, cause our existing customers to not renew their agreements or adversely affect our ability to attract new customers.
Our data centers and cloud computing providers are vulnerable to damage or interruption from human error, intentional bad acts, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures, cyber-attacks and similar events. The occurrence of a natural disaster or an act of terrorism, or vandalism or other misconduct, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in the availability of our SaaS solutions or impair their functionality. Our business, growth prospects and operating results would also be harmed if our customers and potential customers are not confident that our solutions are reliable.

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We rely in part on a pricing model under which a variable portion of the subscription fees we receive from customers is based upon the amount of GMV or advertising spend that those customers process through our platform, and any change in the attractiveness of that model or any decline in our customers' sales could adversely affect our financial results.
We have adopted a pricing model under which a portion of the subscription fees we receive from most of our customers is variable, based on the amount of our customers' GMV or advertising spend processed through our platform that exceeds a specified amount established by contract, which we refer to as variable subscription fees. Most of our customer contracts include this variable subscription fee component. If sales or advertising spend by our customers processed through our platform were to decline, or if more of our customers require fully fixed pricing terms that do not provide for any variability based on their GMV or advertising spend processed through our platform, our revenue and margins could decline.
Our quarterly operating results have fluctuated in the past and may do so in the future, which could cause our stock price to decline.
Our operating results have historically fluctuated due to changes in our business, and our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance. Factors that may cause fluctuations in our quarterly operating results include, but are not limited to, the following:
•
seasonal patterns in consumer spending;
•
the addition of new customers or the loss of existing customers;
•
changes in demand for our software;
•
the timing and amount of sales and marketing expenses;
•
changes in the prospects of the economy generally, which could alter current or prospective customers' spending priorities, or could increase the time it takes us to close sales;
•
changes in our pricing policies or the pricing policies of our competitors;
•
costs necessary to improve and maintain our software platform; and
•
costs related to acquisitions of other businesses.
Our operating results may fall below the expectations of market analysts and investors in some future periods, which could cause the market price of our common stock to decline substantially.
The seasonality of our business creates significant variance in our quarterly revenue, which makes it difficult to compare our financial results on a sequential quarterly basis.
Our customers are brands and retailers that typically realize a significant portion of their online sales in the fourth quarter of each year during the holiday season. As a result of this seasonal variation, our subscription revenue fluctuates, with the variable portion of our subscription fees being higher in the fourth quarter than in other quarters and with revenue generally declining in the first quarter sequentially from the fourth quarter. Our business is therefore not necessarily comparable on a sequential quarter-over-quarter basis and you should not rely solely on quarterly comparisons to analyze our growth.
Failure to adequately manage our growth could impair our ability to deliver high-quality solutions to our customers, hurt our reputation and compromise our ability to become profitable.
We have experienced, and may continue to experience, significant growth in our business. If we do not effectively manage our growth, the quality of service of our solutions may suffer, which could negatively affect our reputation and demand for our solutions. Our growth has placed, and is expected to continue to place, a significant strain on our managerial, operational and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:
•
hire additional personnel, both domestically and internationally;
•
implement additional information management systems;
•
maintain close coordination among our engineering, operations, legal, finance, sales and marketing and client service and support organizations; and
•
further develop our operating, administrative, legal, financial and accounting systems and controls.

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Moreover, if our sales increase, we may be required to concurrently deploy our hosting infrastructure at multiple additional locations or provide increased levels of customer service. Failure to accomplish any of these requirements could impair our ability to continue to deliver our solutions in a timely fashion, fulfill existing customer commitments or attract and retain new customers.
If we do not retain our senior management team and key employees, or if we fail to attract and retain additional highly skilled sales talent, we may not be able to sustain our growth or achieve our business objectives.
Our future success is substantially dependent on the continued service of our senior management team. Our future success also depends on our ability to continue to attract, retain, integrate and motivate highly skilled technical, sales and administrative employees. Competition for these employees in our industry is intense. As a result, we may be unable to attract or retain these management and other key personnel that are critical to our success, resulting in harm to our key client relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs. The loss of the services of our senior management or other key employees could make it more difficult to successfully operate our business and pursue our business goals.
Our business and growth objectives also may be hindered if our efforts to expand our sales team do not generate a corresponding increase in revenue. In particular, if we are unable to hire, develop and retain talented sales personnel or if our new sales personnel are unable to achieve expected productivity levels in a reasonable period of time, we may not be able to significantly increase our revenue and grow our business.
Our strategy of pursuing opportunistic acquisitions or investments may be unsuccessful and may divert our management's attention and consume significant resources.
A part of our growth strategy is to opportunistically pursue acquisitions of, or investments in, other complementary businesses or individual technologies. Any acquisition or investment may require us to use significant amounts of cash, issue potentially dilutive equity securities or incur debt. In addition, acquisitions involve numerous risks, any of which could harm our business, including:
•
difficulties in integrating the operations, technologies, services and personnel of acquired businesses, especially if those businesses operate outside of our core competency of providing e-commerce software solutions;
•
cultural challenges associated with integrating employees from acquired businesses into our organization;
•
ineffectiveness or incompatibility of acquired technologies or services;
•
failure to successfully further develop the acquired technology in order to recoup our investment;
•
potential loss of key employees of acquired businesses;
•
inability to maintain the key business relationships and the reputations of acquired businesses;
•
diversion of management's attention from other business concerns;
•
litigation for activities of acquired businesses, including claims from terminated employees, customers, former stockholders or other third parties;
•
in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;
•
costs necessary to establish and maintain effective internal controls for acquired businesses; and
•
increased fixed costs.

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Following the U.S. Supreme Court's decision in South Dakota v. Wayfair, several states have enacted, and others may choose to enact in the future, new legislation and increase enforcement efforts of existing legislation requiring online retailers to collect and remit sales tax. If there is increased legislative or enforcement action, e-commerce in general could decline, and any additional taxes may increase the costs we and/or our customers will have to pay to sell their goods through our platform, thereby making our solutions less attractive and potentially resulting in a lower amount of GMV processed through our platform. As a result, our revenue could decline.
An increasing number of states have adopted laws that require out-of-state retailers to collect sales taxes on their behalf. The U.S. Supreme Court recently reversed its prior decision that prohibited states from requiring online retailers without a physical presence to collect and remit sales tax. In its decision, the Supreme Court upheld a South Dakota statute that imposed a sales tax collection obligation on remote sellers with sales exceeding specified thresholds. A number of states have already begun requiring sales and use tax collection by remote vendors and/or by online marketplaces. The details and effective dates of these collection requirements vary from state to state. This is a rapidly evolving area and we cannot predict what legislative or enforcement action might be taken by the states or Congress. Increased taxation of online sales could result in online shopping losing some of its current advantage over traditional retail models, which could diminish its appeal to consumers. This could cause e-commerce growth to slow, which would, in turn, hurt the business of our customers, potentially make our products less attractive and cause the amount of GMV processed through our platform, and ultimately our revenue, to decline.
In addition, it is possible that one or more states or the federal government or foreign countries may seek to impose a tax collection, reporting or record-keeping obligation on companies like us that facilitate e-commerce, even though we are not an online retailer. Similar issues exist outside of the United States, where the application of value-added tax or other indirect taxes on online retailers and companies like us that facilitate e-commerce is uncertain and evolving. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition of sales tax collection obligations on out-of-state customers could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors and decrease our future sales, which could have a material adverse impact on our business and operating results. In addition, the imposition of sales taxes on our customers who did not collect such taxes in the past could result in them charging higher rates for their products, potentially resulting in lower sales and a lower amount of GMV processed through our platform, which would negatively impact our revenue. Additionally, new legislation could require us to incur substantial costs in order to comply, including costs associated with tax calculation, collection, remittance and audit requirements, any of which could make our platform solutions less attractive.
We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to tax liability for past sales, which could harm our business.
State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of such taxes to our platform in various jurisdictions is unclear. Further, these jurisdictions' rules regarding tax nexus are complex and vary significantly. As a result, we could face the possibility of tax assessments and audits, and our liability for these taxes and associated penalties could exceed our original estimates. We previously entered into voluntary disclosure agreements, or VDAs, with certain jurisdictions and we paid an aggregate of $2.5 million under the terms of completed VDAs and as a settlement with one jurisdiction that rejected our VDA application and conducted a sales tax audit. We do not currently have any unresolved VDA applications or ongoing sales tax audits, though any successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so and do not accrue for such taxes could result in substantial tax liabilities and related penalties for past sales, discourage customers from purchasing our application or otherwise harm our business and operating results.
Changes to U.S. tax laws could adversely affect our business and financial condition.
On December 22, 2017, the Tax Cuts and Jobs Act went into effect significantly revising the Internal Revenue Code of 1986, as amended. This Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Act is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Act. The impact of this tax reform on holders of our common

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stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.
Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.
We are subject to taxation in numerous countries, states and local tax jurisdictions. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including passage of the newly enacted federal income tax law, changes in the mix of our profitability from jurisdiction to jurisdiction, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.
Evolving domestic and international data privacy regulations may restrict our ability, and that of our customers, to solicit, collect, process, disclose and use personal information or may increase the costs of doing so, which could harm our business.
Federal, state and foreign governments and supervising authorities have enacted, and may in the future enact, laws and regulations concerning the solicitation, collection, processing, disclosure or use of consumers' personal information. Evolving regulations regarding personal data and personal information, in the European Union and elsewhere, especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit our ability to operate or expand our business.
Such laws and regulations require or may in the future require us or our customers to implement privacy and security policies and practices; permit individuals to access, correct or delete personal information stored or maintained by us or our customers; inform individuals of security incidents that affect their personal information; and, in some cases, obtain consent to use personal information for specified purposes. Other proposed legislation could, if enacted, impose additional requirements and prohibit the use of specific technologies, such as those that track individuals' activities on web pages or record when individuals click on a link contained in an email message. Such laws and regulations could restrict our customers' ability to collect and use web browsing data and personal information, which may reduce our customers' demand for our solutions.
The laws in this area are complex and developing rapidly. In the United States, many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security and data breaches. Laws in all states require businesses to provide notice to customers whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. Further, states are constantly adopting new laws or amending existing laws, requiring attention to frequently changing regulatory requirements. For example, California enacted the California Consumer Privacy Act, or the CCPA, on June 28, 2018, which takes effect on January 1, 2020 and has been dubbed the first “GDPR-like” law in the United States (referring to the EU’s General Data Protection Regulation, described below). The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States. Other states are beginning to pass similar laws.
The European Union adopted a new General Data Protection Regulation, or GDPR, which went into effect in May 2018, to unify data protection within the European Union under a single law. The GDPR is likely to result in significantly greater compliance burdens and costs for companies with customers or operations in the European Union. The GDPR creates a range of new compliance obligations and increases financial penalties for non-compliance, and extends the scope of the European Union data protection law to all companies processing personal data of European Union data subjects, regardless of the company's location. These laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information. We will continue to follow developments and work to maintain conforming means of transferring data from Europe, but despite our efforts to address the changes, we may be unsuccessful in establishing conforming means of transferring data from Europe. For example, there are various activities in the European Union that could lead to the invalidation of the use of privacy shield or model clauses as accepted mechanisms for transferring personal data of European Union data subjects across borders. There is significant uncertainty related to the manner in which data protection authorities will seek to enforce compliance with GDPR. For example, it is not clear if the authorities will conduct random

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audits of companies doing business in the European Union, or if the authorities will wait for complaints to be filed by individuals who claim their rights have been violated. Enforcement uncertainty and the costs associated with ensuring GDPR compliance could be onerous and adversely affect our business, financial condition, results of operations and prospects. While we do not currently believe that our compliance with the GDPR will have a material effect on our business, we will continue to monitor regulation and enforcement under this new law.
Changing industry standards and industry self-regulation regarding the collection, use and disclosure of data may have similar effects. Existing and future privacy and data protection laws and increasing sensitivity of consumers to unauthorized disclosures and use of personal information may also negatively affect the public's perception of our customers' sales practices. If our solutions are perceived to cause, or are otherwise unfavorably associated with, invasions of privacy, whether or not illegal, we or our customers may be subject to public criticism. Public concerns regarding data collection, privacy and security may also cause some consumers to be less likely to visit our customers' websites or otherwise interact with our customers, which could limit the demand for our solutions and inhibit the growth of our business.
Any failure on our part to comply with applicable privacy and data protection laws, regulations, policies and standards or any inability to adequately address privacy concerns associated with our solutions, even if unfounded, could subject us to liability, damage our reputation, impair our sales and harm our business. Furthermore, the costs to our customers of compliance with, and other burdens imposed by, such laws, regulations, policies and standards may limit adoption of and demand for our solutions.
Cybersecurity incidents could harm our business and negatively impact our financial results.
Cybersecurity incidents could endanger the confidentiality, integrity and availability of our information resources and the information we collect, use, store and disclose. These incidents may be an intentional attack or an unintentional event, targeted at us or our third-party contractors or consultants, and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. Such disruptions may be caused by events such as computer hacking, phishing attacks, ransomware, dissemination of computer viruses, worms and other destructive or disruptive software, denial of service attacks and other malicious activity, as well as power outages, natural disasters (including extreme weather), terrorist attacks or other similar events. We believe that we take reasonable steps that are designed to protect the security, integrity and confidentiality of the information we collect, use, store, and disclose, but there is no guarantee that inadvertent or unauthorized data access will not occur despite our efforts. For example, our system redundancy may be ineffective or inadequate, or we could be impacted by software bugs or other technical malfunctions, as well as employee error or malfeasance. In addition, while we believe we have adequate insurance coverage to compensate for any losses associated with such events, the coverage may in fact not be adequate to cover all potential losses. The development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Any unauthorized access or use of information, virus or similar breach or disruption to our, our customers', or our partners' systems and security measures could result in disrupted operations, loss of information, damage to our reputation and customer relationships, early termination of our contracts and other business losses, indemnification of our customers, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, financial penalties, litigation, regulatory investigations, and other significant liabilities, any of which could materially harm our business.
Global economic conditions could materially adversely impact demand for our solutions.
Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about global economic conditions could result in customers postponing purchases of our solutions in response to tighter credit, unemployment, negative financial news or declines in income or asset values and other macroeconomic factors, or the perception that any of these may occur, any of which could have a material negative effect on demand for our solutions and, accordingly, on our business, results of operations or financial condition. For example, the United States has recently imposed increased tariffs on certain imports from China and has expressed a willingness for further tariffs on goods imported from China and other countries. Any economic uncertainty caused by the United States tariffs imposed or expected to be imposed on goods from China or other countries, and any retaliatory counter-measures imposed by countries subject to such tariffs, could have a negative impact on consumer spending for discretionary items, which in turn could hurt our brand and retailer customers in a manner that might cause them to spend less on our solutions. Any such outcome could impair our revenues and results of operations.



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RISKS RELATED TO THE SOFTWARE-AS-A-SERVICE (SAAS) MODEL
If we fail to manage and increase the capacity of our hosted infrastructure, our customers may be unable to process transactions through our platform, which could harm our reputation and demand for our solutions.
We have experienced significant growth in the number of users, transactions and data that our hosting infrastructure supports. We seek to maintain sufficient excess capacity in our hosted infrastructure to be sufficiently flexible and scalable to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments and to handle spikes in usage. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure capacity requirements, particularly in the fourth quarter when we typically experience significant increases in the volume of customer transactions processed through our platform, our customers could experience service outages that may subject us to financial penalties or other liabilities, result in customer losses, harm our reputation and adversely affect our ability to grow our revenue.
We derive most of our revenue from annual subscription agreements, as a result of which a significant downturn in our business may not be immediately reflected in our operating results.
We derive most of our revenue from subscription agreements, which are typically one year in length. As a result, a significant portion of the revenue we report in each quarter is generated from customer agreements entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our financial performance in that quarter but might negatively affect our revenue in future quarters. Accordingly, the effect of significant declines in sales and market acceptance of our solutions may not be reflected in our short-term results of operations.
Our business is substantially dependent upon the continued growth of the market for on-demand SaaS solutions. If this market does not continue to grow, demand for our solutions could decline, which in turn could cause our revenues to decline and impair our ability to become profitable.
We derive, and expect to continue to derive, substantially all of our revenue from the sale of our solutions, which are delivered under a SaaS model. As a result, widespread use and acceptance of this business model is critical to our future growth and success. Under the more traditional license model for software procurement, users of the software typically run the applications in-house on their own hardware. Because many companies are generally predisposed to maintaining control of their information technology systems and infrastructure, there may be resistance to the concept of accessing software functionality as a service provided by a third party. In addition, the market for SaaS solutions is still evolving, and existing and new market participants may introduce new types of solutions and different approaches to enable organizations to address their needs. If the market for SaaS solutions fails to grow or grows more slowly than we currently anticipate, demand for our solutions and our revenue, gross margin and other operating results could be negatively impacted.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS
Our international operations subject us to increased challenges and risks. If we do not successfully manage the risks associated with international operations, we could experience a variety of costs and liabilities and the attention of our management could be diverted.
We have international operations and may further expand internationally by opening offices in new countries and regions worldwide. However, our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, taxation systems, alternative dispute systems, regulatory systems and commercial infrastructures. International expansion will require us to invest significant funds and other resources. Expanding internationally may subject us to new risks that we have not faced before or increase risks that we currently face, including risks associated with:
•
recruiting and retaining employees in foreign countries;
•
increased competition from local providers;
•
compliance with applicable foreign laws and regulations;
•
compliance with changing foreign privacy, data protection and information security laws and regulations and the risks and costs of noncompliance;
•
longer sales or collection cycles in some countries;
•
credit risk and higher levels of payment fraud;

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•
compliance with anti-bribery laws, such as the Foreign Corrupt Practices Act;
•
currency exchange rate fluctuations;
•
tariffs, customs, trade sanctions, trade embargoes and other barriers to importing or exporting materials and products in a cost-effective and timely manner, or changes in applicable tariffs or customs rules;
•
foreign exchange controls that might prevent us from repatriating cash earned outside the United States;
•
economic and political instability in some countries, including terrorist attacks and civil unrest;
•
less protective intellectual property laws;
•
compliance with the laws of numerous foreign taxing jurisdictions in which we conduct business, potential double taxation of our international earnings and potentially adverse tax consequences due to changes in applicable U.S. and foreign tax laws;
•
increased costs to establish and maintain effective controls at foreign locations; and
•
overall higher costs of doing business internationally.
If our revenue from our international operations does not exceed the expense of establishing and maintaining these operations, our business and operating results will suffer. For example, in the third quarter of 2019, as part of a strategic initiative to reduce our expenses and align our operations with evolving business needs, we discontinued our physical operations in China.
Our European operations could be disrupted due to the United Kingdom's planned exit from the European Union, commonly referred to as “Brexit.”
Our European headquarters are located in England, and we have offices in Germany, Ireland and Spain supporting brands and retailers throughout Europe. Currently, the United Kingdom is scheduled to leave the European Union no later than January 31, 2020. The relationship between the United Kingdom and the European Union following a United Kingdom departure has not been determined yet. As a result, the impact of Brexit is not yet known and depends on any agreements the United Kingdom and European Union may make to retain access to each other's markets, either during a transition period or more permanently. The measures or lack of any agreement could disrupt the markets we serve and may increase costs for European consumers and our customers, which may cause consumers to reduce spending on products that our solutions serve and may cause customers to reduce their spending on our solutions. In addition, Brexit could lead to legal uncertainly and potentially divergent national laws and regulations, including with respect to data privacy. A withdrawal from the European Union is unprecedented and it is unclear what financial, trade, legal and employment implications the withdrawal of the United Kingdom from the European Union would have and how the withdrawal would affect us. Our operations in the United Kingdom as well as in other countries in the European Union and European Economic Area could be disrupted by Brexit, particularly if there is a change in the United Kingdom’s relationship to the single market. Even before any change to the United Kingdom’s relationship with the European Union, the announcement of Brexit has created economic uncertainty surrounding the terms of Brexit and its consequences could adversely impact customer confidence resulting in customers reducing their spending budgets on our solutions. These and other adverse consequences such as reduced consumer spending, deterioration in economic conditions, volatility in exchange rates, and prohibitive laws and regulations could have a negative impact on our business, operating results and financial condition.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in full compliance with applicable laws.
Our solutions are subject to export controls, including the Commerce Department's Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department's Office of Foreign Assets Controls, and exports of our solutions must be made in compliance with these laws. If we fail to comply with these U.S. export control laws and import laws, including U.S. Customs regulations, we could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines, which may be imposed on us and responsible employees or managers, and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities.
Furthermore, the U.S. export control laws and economic sanctions laws prohibit the shipment or export of specified products and services to U.S. embargoed or sanctioned countries, governments and persons. Even though we take precautions to prevent our solutions from being provided to U.S. sanctions targets, if our solutions and services were to be exported to those

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prohibited countries despite such precautions, we could be subject to government investigations, penalties, reputational harm or other negative consequences.
Any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our solutions, or in our decreased ability to export or sell our solutions to existing or potential customers with international operations. Additionally, changes in our solutions may be required in response to changes in export and import regulations, which could lead to delays in the introduction and sale of our solutions in international markets, prevent our customers with international operations from deploying our solutions or, in some cases, prevent the export or import of our solutions to some countries, governments or persons altogether. Any decreased use of our solutions or limitation on our ability to export our solutions or sell them in international markets would hurt our revenue and compromise our ability to pursue our growth strategy.
RISKS RELATED TO INTELLECTUAL PROPERTY
We operate in an industry with extensive intellectual property litigation. Claims of infringement against us may hurt our business.
Our success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement without major financial expenditures or adverse consequences. The internet-related software field generally is characterized by extensive intellectual property litigation. Although our industry is rapidly evolving, many companies that own, or claim to own, intellectual property have aggressively asserted their rights. From time to time, we have been subject to legal proceedings and claims relating to the intellectual property rights of others, and we expect that third parties will continue to assert intellectual property claims against us, particularly as we expand the complexity and scope of our business. In addition, most of our subscription agreements require us to indemnify our customers against claims that our solutions infringe the intellectual property rights of third parties.
Future litigation may be necessary to defend ourselves or our customers by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend and could:
•
hurt our reputation;
•
adversely affect our relationships with our current or future customers;
•
cause delays or stoppages in providing our services;
•
divert management's attention and resources;
•
require technology changes to our software that would cause us to incur substantial cost;
•
subject us to significant liabilities; and
•
require us to cease some or all of our activities.
In addition to liability for monetary damages against us, which may be tripled and may include attorneys' fees, or, in some circumstances, damages against our customers, we may be prohibited from developing, commercializing or continuing to provide some or all of our software solutions unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available on commercially favorable terms, or at all.
Our failure to protect our intellectual property rights could diminish the value of our services, weaken our competitive position and reduce our revenue.
We regard the protection of our intellectual property, which includes trade secrets, copyrights, trademarks, domain names and patent applications, as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others.

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We have received patent protection for some of our technologies and are seeking patent protection for other of our technologies but there can be no assurance that any patents will ultimately be issued. We have registered domain names, trademarks and service marks in the United States and in jurisdictions outside the United States and are also pursuing additional registrations. Effective trade secret, copyright, trademark, domain name and patent protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. We may be required to protect our intellectual property in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. We may, over time, increase our investment in protecting our intellectual property through additional patent filings that could be expensive and time-consuming.
We have licensed in the past, and expect to license in the future, some of our proprietary rights, such as trademarks or copyrighted material, to third parties. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation.
Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology. In addition, the laws of many countries, such as China and India, do not protect our proprietary rights to as great an extent as do the laws of European countries and the United States. Further, the laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual property could result in competitors offering services that incorporate our most technologically advanced features, which could seriously reduce demand for our software solutions. In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing upon our intellectual property rights.
Our use of "open source" software could negatively affect our ability to sell our solutions and subject us to possible litigation.
A portion of our technology platform and our solutions incorporates so-called "open source" software, and we may incorporate additional open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. If we fail to comply with these licenses, we may be subject to specified conditions, including requirements that we offer our solutions that incorporate the open source software for no cost, that we make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes open source software we use were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, including being enjoined from the sale of our solutions that contained the open source software and required to comply with the foregoing conditions, which could disrupt the sale of the affected solutions. In addition, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to change our products.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
An active trading market for our common stock may not continue to develop or be sustained.
Although our common stock is listed on the New York Stock Exchange, or NYSE, we cannot assure you that an active trading market for our shares will continue to develop or be sustained. If an active market for our common stock does not continue to develop or is not sustained, it may be difficult for investors in our common stock to sell shares without depressing the market price for the shares or to sell the shares at all.
The trading price of the shares of our common stock has been and is likely to continue to be volatile.
Our stock price has been volatile. The stock market in general and the market for technology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:
•
actual or anticipated variations in our operating results;

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•
changes in financial estimates by us or by any securities analysts who might cover our stock;
•
conditions or trends in our industry;
•
stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the software industry;
•
announcements by us or our competitors of new product or service offerings, significant acquisitions, strategic partnerships or divestitures;
•
announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
•
capital commitments;
•
investors' general perception of our company and our business;
•
recruitment or departure of key personnel; and
•
sales of our common stock, including sales by our directors and officers or specific stockholders.
Stockholders may initiate class action lawsuits against us following periods of volatility in the market prices of our common stock. For example, in 2015, class action complaints were filed against us, alleging violations of the federal securities laws. The cases were later dismissed by federal courts without any liability to us. New litigation, if instituted against us, could cause us to incur substantial costs and divert management's attention and resources from our business.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business, and we have limited research coverage by equity research analysts. Equity research analysts may elect not to initiate or continue to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. Even if we have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.
Our certificate of incorporation authorizes us to issue up to 100,000,000 shares of common stock and up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by some or all of our stockholders. For example, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.
Our charter documents also contain other provisions that could have an anti-takeover effect, including:
•
only one of our three classes of directors is elected each year;
•
stockholders are not entitled to remove directors other than by a 66 2/3% vote and only for cause;
•
stockholders are not permitted to take actions by written consent;

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•
stockholders cannot call a special meeting of stockholders; and
•
stockholders must give advance notice to nominate directors or submit proposals for consideration at stockholder meetings.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the rules and regulations of the NYSE. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting and perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting. This requires that we incur substantial professional fees and internal costs to maintain appropriate and necessary accounting and finance functions and that we expend significant management efforts.
We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements, and we may in the future discover additional weaknesses that require improvement. In addition, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future and our stock may not appreciate in value.
We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any existing or future debt agreements may preclude us from paying dividends. There is no guarantee that shares of our common stock will appreciate in value or that the price at which our stockholders have purchased their shares will be able to be maintained.
We incur significant costs and demands upon management as a result of being a public company.
As a public company listed in the United States, we incur significant additional legal, accounting and other costs, which we expect to increase, particularly after we ceased to be an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 on January 1, 2019. These additional costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and stock exchanges, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.

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We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.
While we anticipate that our existing cash, together with our cash flow from operations, will be sufficient to fund our operations for at least the next twelve months, we may need to raise additional capital to fund operations in the future or to meet various objectives, including developing future technologies and services, increasing working capital, acquiring businesses and responding to competitive pressures. If we seek to raise additional capital, it may not be available on favorable terms or may not be available at all. Lack of sufficient capital resources could significantly limit our ability to manage our business and to take advantage of business and strategic opportunities. Any additional capital raised through the sale of equity or debt securities with an equity component would dilute our stock ownership. If adequate additional funds are not available, we may be required to delay, reduce the scope of or eliminate material parts of our business strategy, including potential additional acquisitions or development of new technologies.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 
 
 
 
 
 
 
 
 
(a) Sales of Unregistered Securities
None.
ITEM 6. EXHIBITS
 
 
 
 
 
 
 
 
 
 
Exhibit Number
 
Description of Document
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
4.1
 
 
 
 
10.1+
*
 
 
 
10.2+
*
 
 
 
10.3+
*
 
 
 
31.1
*
 
 
 
31.2
*
 
 
 
32.1
**
 
 
 
101.INS
*
XBRL Instance Document
 
 
 
101.SCH
*
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
*
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
*
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
*
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
*
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith.
**
These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
+
Indicates management contract or compensatory plan.


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Table of Contents

SIGNATURES
 
 
 
 
 
 
 
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
CHANNELADVISOR CORPORATION
 
 
 
 
Date:
November 7, 2019
By:
 
/s/ Richard F. Cornetta
 
 
 
 
Richard F. Cornetta
 
 
 
 
Chief Financial Officer
 
 
 
 
(On behalf of the Registrant and as Principal Financial Officer)





50
Exhibit 10.1

AMENDMENT TO EXECUTIVE SEVERANCE
AND CHANGE IN CONTROL LETTER AGREEMENT

Dear Rich:

This Amendment to Executive Severance and Change in Control Letter Agreement (the “Amendment”) to is made and entered into effective as of December 31, 2018 (the “Amendment Effective Date”) by and between ChannelAdvisor Corporation (“ChannelAdvisor”) and Richard Cornetta (“You”). This Agreement amends the Executive Severance and Change in Control Letter Agreement between You and ChannelAdvisor dated November 5, 2015 (the “Agreement”) effective as of the Amendment Effective Date. Except as expressly provided in this Amendment, the Agreement, as amended by this Amendment, remains in full force and effect. All capitalized terms not defined in this Amendment have the meaning stated in the Agreement.

Section 3 of the Agreement is hereby amended and restated to read as follows:

“3.    Change in Control with No Termination
If there is a Change in Control and Your employment has not been terminated for any reason as of the first anniversary of the Change in Control, then You shall receive one (1) year of acceleration of vesting of all Your Awards that were granted before the Amendment Effective Date and are unvested as of the first anniversary of the Change in Control, with the additional vesting being credited on the first anniversary of the Change in Control.”

Sincerely,
CHANNELADVISOR CORPORATION
/s/ David J. Spitz    
David J. Spitz
Chief Executive Officer
Accepted and agreed to by:

/s/ Richard Cornetta    
Richard Cornetta



Exhibit 10.1


EXECUTIVE SEVERANCE AND CHANGE IN CONTROL LETTER AGREEMENT

Dear Rich:

This Executive Severance and Change in Control Letter Agreement (the “Agreement”) is made and entered into effective as of November 5, 2015 by and between ChannelAdvisor Corporation (“ChannelAdvisor”) and Richard Cornetta (“You”) to set forth certain obligations if Your employment with ChannelAdvisor is terminated under different scenarios.

1.Definitions
“Award” shall mean any rights held by You to receive shares of ChannelAdvisor stock under a ChannelAdvisor equity incentive plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Performance Stock Award, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, or any Other Stock Award, each as defined in the applicable ChannelAdvisor equity incentive plan.
“For Cause” termination shall mean the termination of Your employment for (i) Your conviction of, or plea of nolo contendere to, a felony involving fraud, moral turpitude or dishonesty; (ii) Your willful participation in a fraud or act of dishonesty against ChannelAdvisor, or Your breach of Your fiduciary duty to ChannelAdvisor, which results in material harm or damage to ChannelAdvisor; (iii) willful violation of a reasonable ChannelAdvisor written policy that causes material harm or damage to ChannelAdvisor that is not cured within thirty days after written notice thereof; (iv) Your intentional damage to ChannelAdvisor’s real and intellectual property which results in harm to ChannelAdvisor; (v) Your death; or (vi) Your physical or mental inability to perform substantially all of Your duties for a period of one hundred eighty (180) days, whether or not consecutive, during any 365-day period.
“Good Reason” termination shall mean the termination of Your employment by Your resignation in the following circumstances: (i) the forced relocation of You to a location that is outside of a thirty (30) mile radius of Morrisville, NC; or (ii) a material reduction in Your total compensation which is not a part of a general reduction or other concessionary arrangement affecting all employees or affecting all senior executive officers on a pro rata, equitable basis. For each event listed in (i) and (ii) above, You shall give ChannelAdvisor notice thereof within ninety (90) days of the initial existence of the event, after which date ChannelAdvisor shall have no less than thirty (30) days to cure the event which would otherwise constitute Good Reason and You must terminate Your employment with the Company for such Good Reason no later than one (1) year after the initial existence of the event giving rise to Good Reason.
“Change in Control” shall have the meaning stated in the ChannelAdvisor Corporation 2013 Equity Incentive Plan, as amended from time to time. If required for compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), in no event

2

Exhibit 10.1

will a Change in Control be deemed to have occurred if such transaction is not also a “change in the ownership or effective control of” ChannelAdvisor or “a change in the ownership of a substantial portion of the assets of” ChannelAdvisor as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). ChannelAdvisor may, in its sole discretion and without Your consent, amend the definition of “Change in Control” to conform to the definition of “Change in Control” under Section 409A of the Code, and the regulations thereunder.
“Resignation” shall mean Your resignation of employment from ChannelAdvisor in circumstances other than Good Reason.
“Termination Date” shall mean the date Your employment at ChannelAdvisor ends.
2.    Compensation and Benefits Upon Termination
(A)    By ChannelAdvisor For Cause or by You Upon Resignation
If ChannelAdvisor terminates Your employment For Cause or You submit Your Resignation, You shall not be entitled to any of the severance benefits in Sections 2(B) or 2(C) below. However, on the next regularly scheduled payroll date after the Termination Date, ChannelAdvisor shall pay You (i) all earned and unpaid salary and variable compensation, if any, payable pursuant to the applicable variable compensation plan, through the Termination Date; (ii) all accrued and unused vacation time in accordance with ChannelAdvisor policies; and (iii) all of Your outstanding business expenses incurred through the Termination Date pursuant to ChannelAdvisor policies, provided that You submit invoices in accordance with ChannelAdvisor policies (collectively, the “Employment Termination Payments”).
(B)    By ChannelAdvisor other than for Cause or by You for Good Reason
If ChannelAdvisor terminates Your employment, other than For Cause, or You terminate Your employment for Good Reason, and provided that such termination of employment constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h)) (a “Separation From Service”), You will receive the Employment Termination Payments, and, subject to Your execution and nonrevocation within the permitted revocation period of a waiver and release in substantial conformity with the form attached hereto as Attachment 1 (“Severance Agreement”):
i.
ChannelAdvisor shall pay to You a payment equal to six (6) months of Your base compensation (“Base Compensation”) plus one month of Your Base Compensation for each Year of Service up to a total maximum of twelve (12) months of Base Compensation. A “Year of Service” means a calendar year of service You complete from the date of Your hire until the Termination Date, rounded up to the nearest whole year if You are 6 months and a day or more into the next Year of Service.

3

Exhibit 10.1

In addition, ChannelAdvisor shall pay to You either:
(a)    if Your compensation includes a quarterly variable incentive component and the Termination Date is not the last day of the calendar quarter, then one calendar quarter of Your then current quarterly variable incentive compensation calculated at 100% achievement; OR
(b)     if Your compensation includes an annual variable incentive compensation component and the Termination Date is not the last day of the calendar year, a prorated share (for the period from the beginning of the calendar year to the Termination Date) of Your then current annual variable compensation calculated at 100% achievement.
Payment of the amounts in this Section 2(B)(1) shall be made in a one-time lump sum payment on the next available regularly scheduled payroll date within sixty (60) days following the Termination Date.
1.
If You timely and properly elect COBRA continuation coverage under ChannelAdvisor’s group health plan for medical or dental coverage, ChannelAdvisor shall pay the monthly premium for the coverage directly to the insurance provider for a period of up to 12 months following the Termination Date. If You receive subsequent employment that includes one or both of these benefits, then upon the first date You are eligible to receive the benefits, You shall promptly notify ChannelAdvisor in writing. Upon receipt of Your notice, ChannelAdvisor shall cease payment for any benefits that are provided by Your new employer. If You delay in notifying ChannelAdvisor of a change in benefits status, You shall promptly return all overpayments.
2.
ChannelAdvisor shall accelerate vesting of all of the Awards that are unvested as of the Termination Date by one quarter of a year (3 months).
3.
ChannelAdvisor shall extend the exercise period for the Awards until two (2) years from the Termination Date, but in no event will the exercise period extend beyond the original term of the Award.
(C)    Termination in Connection with Change in Control Event
If there is a Change in Control, and if, within the period during the two (2) months before or the twelve (12) months after the Change in Control, ChannelAdvisor (or the acquiring entity) (i) terminates Your employment, other than For Cause, or (ii) You terminate Your employment for Good Reason, in each case provided that the termination of employment constitutes a Separation From Service, You will receive the Employment Termination Payments, and, subject to Your execution and nonrevocation within the permitted revocation period of the Severance Agreement, on the next available regularly scheduled payroll date within sixty (60) days following the Termination Date, ChannelAdvisor shall provide You

4

Exhibit 10.1

(1) the benefits in Sections 2(B)(1), (2) and (4) above, and (2) full acceleration of vesting of all Your Awards that are unvested as of the Termination Date, with the effect that all such Awards shall be fully vested and exercisable as of the Termination Date.
3.    Change in Control with No Termination
If there is a Change in Control and Your employment has not been terminated for any reason as of the first anniversary of the Change in Control, then You shall receive one (1) year of acceleration of vesting of all Your Awards that are unvested as of the first anniversary of the Change in Control, with the additional vesting being credited on the first anniversary of the Change in Control.

4.    Section 280G
(A)Notwithstanding any other provision of this Agreement or any other plan, arrangement or agreement to the contrary, if (i) any of the payments or benefits provided or to be provided by ChannelAdvisor to You or for Your benefit pursuant to the terms of this Agreement or otherwise (“Covered Payments”) constitute “parachute payments” within the meaning of Section 280G of the Code subject to the excise tax imposed under Section 4999 of the Code (or any successor provision) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), and (ii) the aggregate present value of the parachute payments reduced by the Excise Tax would be less than three (3) times Your “base amount” as defined in Section 280G(b)(3) of the Code, then the Covered Payments shall be reduced (but not below zero) to the minimum extent necessary to ensure that no portion of the Covered Payments is subject to the Excise Tax.

(B)Any such reduction shall be made by in accordance with Section 409A of the Code and the following:
(i)
the Covered Payments which do not constitute nonqualified deferred compensation subject to Section 409A of the Code shall be reduced first;
(ii)
all other Covered Payments shall then be reduced as follows: (A) cash payments shall be reduced before non-cash payments; and (B) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date; and
(iii)
in the event that accelerated vesting of Awards is to be reduced, such acceleration will be cancelled in the reverse order of the dates on which the Awards were granted.


5

Exhibit 10.1

(C)You shall provide ChannelAdvisor with such information and documents as ChannelAdvisor may reasonably request in order to make a determination under this Section 4.

5.
    Compliance with Section 409A of the Code
It is intended that all of the payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulation Sections 1.409A-1(b)(4) and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions. If any of the payments are not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A of the Code, and incorporates by reference all required definitions and payment terms. For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Your right to receive any installment payments under this Agreement (whether severance payments, expense reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment under this Agreement will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Agreement, if You are deemed by ChannelAdvisor at the time of Your Separation from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, and if any of the payments, including the severance benefits provided under this Agreement, upon Separation From Service set forth herein and/or under any other agreement with ChannelAdvisor are deemed to be “deferred compensation,” then to the extent delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code and the related adverse taxation under Section 409A of the Code, such payments will not be provided to You prior to the earliest of (i) the expiration of the six (6)-month period measured from the date of Your Separation From Service with ChannelAdvisor, (ii) the date of Your death or (iii) such earlier date as permitted under Section 409A of the Code without the imposition of adverse taxation. Upon the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Paragraph will be paid in a lump sum to You, and any remaining payments due will be paid as otherwise provided in this Agreement or in the applicable agreement. No interest will be due on any amounts so deferred.
6.General
ChannelAdvisor shall take any required corporate actions needed as of the Termination Date to insure the acceleration of the Awards and extension of the exercise period as described in this Agreement. This Agreement constitutes the entire agreement between the parties with respect to termination of Your employment with ChannelAdvisor except for that certain ChannelAdvisor Corporation Special Terms and Conditions of Employment between You and ChannelAdvisor dated September 23, 2013, as may be amended from time to time. If there is a conflict between the terms of this and any other agreement between You and ChannelAdvisor, this Agreement shall control. Any amendments to this Agreement and any material changes to Attachment 1 hereto must be in writing and executed by both parties.

6

Exhibit 10.1

This Agreement may be entered into by each party in separate counterparts and shall constitute one fully executed Agreement upon execution by both You and ChannelAdvisor. This Agreement shall be construed in accordance with the laws of the State of North Carolina, without regard to conflict of laws principles. If the parties enter into legal proceedings in dispute of any of the terms of this Agreement, the losing party shall pay all reasonable legal fees of the prevailing party. This Agreement is binding upon ChannelAdvisor’s successors (whether by merger, sale of stock, or sale of all or substantially all its assets) and assigns.
Sincerely,
CHANNELADVISOR CORPORATION
/s/ David J. Spitz    
David J. Spitz
Chief Executive Officer
Accepted and agreed to by:

/s/ Richard Cornetta    
Richard Cornetta



7

Exhibit 10.1

Attachment 1 to the Agreement

SEVERANCE AGREEMENT
This Severance Agreement (“Severance Agreement”), containing a release and waiver among other terms, is made as of the ________ day of _________________________, by and between ________________ (“Employee”) and ChannelAdvisor Corporation, for the benefit of its employees, officers, directors, successors and assigns (collectively and individually, “ChannelAdvisor”).
1.    Separation. Employee’s last day of work with ChannelAdvisor and Employee’s employment termination date will be____________________ (the “Separation Date”).
2.    Payment to Employee.
a.Accrued Compensation. Employee agrees that, upon payment by ChannelAdvisor of Employee’s earned salary and variable compensation, if any, payable pursuant to the applicable variable compensation plan through the Separation Date (collectively, “Compensation”), Employee has received from ChannelAdvisor all compensation due to Employee. Employee further agrees that Employee will be paid for all accrued and unused vacation time due to Employee in accordance with ChannelAdvisor policies. The ChannelAdvisor vacation policy is that upon termination, eligible employees are paid for accrued but unused vacation, up to a maximum of 40 hours. Employee will receive these Compensation and vacation payments on the first regular pay date following the Separation Date in accordance with ChannelAdvisor’s normal pay cycle, regardless of whether or not Employee signs this Severance Agreement
b.Expense Reimbursements. If Employee has been issued any ChannelAdvisor credit or calling cards, ChannelAdvisor will cancel these card(s) effective as of the Separation Date. Employee agrees that, on the Separation Date, Employee will submit Employee’s final documented expense reimbursement statement reflecting all business expenses Employee incurred through the Separation Date, if any, for which Employee seeks reimbursement. ChannelAdvisor will reimburse Employee for reasonable business expenses pursuant to ChannelAdvisor’s regular business practice. Employee will receive these payments regardless of whether or not Employee signs this Severance Agreement
c.Severance Payment and Benefits. In accordance with and subject to the terms of that certain Executive Severance and Change in Control Letter Agreement between Employee and ChannelAdvisor dated _________________ (the “Agreement”) in particular, the requirement that this Severance Agreement becomes effective by the twenty-ninth (29th) day following the Separation Date as provided in Paragraph 11 of this Severance Agreement, ChannelAdvisor will:
a.
pay Employee an amount equal to $___________ pursuant to Section 2(B)(1) of the Agreement, which total amount shall be paid in a one-time lump sum payment on the next available regularly scheduled payroll date within sixty (60) days following the Separation Date, and,

1

Exhibit 10.1

b.
if Employee timely and properly elects COBRA continuation coverage under ChannelAdvisor’s group health plan for medical or dental coverage, ChannelAdvisor will pay the monthly premium for the coverage directly to the insurance provider for a period of up to 12 months. If Employee receives subsequent employment that includes one or both of these benefits, then upon the first date Employee is eligible to receive the benefits, Employee shall promptly notify ChannelAdvisor in writing. Upon receipt of Employee’s notice, ChannelAdvisor shall cease payment for any benefits that are being provided by Employee’s new employer. If Employee delays in notifying ChannelAdvisor of the change in benefits status, Employee shall promptly return all overpayments.
(a)    Withholding. Employee agrees that all payments made pursuant to this Paragraph are compensation income and that ChannelAdvisor will make these payments net of applicable withholding and other employment related taxes, with withholding on payments under Paragraph 2(c) shall be made at the lower of Employee’s normal withholding rate or the statutory rate for supplemental wages.
(b)    No Other Payments Related to Employment. Employee agrees that upon payment of the amounts specified in Paragraphs 2(a), (b) and (c) no further amounts (including without limitation base salary, bonus, incentive or variable compensation, equity, severance or benefits) are due to Employee from ChannelAdvisor for any cause or reason with respect to, related to, or arising from Employee’s employment with ChannelAdvisor after the Separation Date except as otherwise set forth in this Severance Agreement.
(c)    Awards. Exhibit A states the number of Awards (as defined in the Agreement) held by Employee to receive shares of ChannelAdvisor stock under a ChannelAdvisor equity incentive plan and vested as of the Separation Date, after giving effect to any applicable acceleration provisions in the Agreement relating to the Awards. Upon expiration of an Award, Employee shall have no further rights under the Award.
1.    Worker’s Compensation, 401(k) Plan and other Benefits. Employee understands that this Severance Agreement does not affect any rights Employee may have with respect to any applicable worker’s compensation claims, but represents that as of the execution of this Severance Agreement Employee has no injuries or physical or mental limitations, restrictions or impairments that preclude Employee from working in any way and has not suffered any on-the-job injury for which Employee has not already filed a claim. Employee understands that Employee’s right to participate in all ChannelAdvisor employee benefit plans terminates on the Separation Date, except for continuation of medical and dental coverage as provided herein. Any benefits accrued and vested as of the Separation Date and which, by their express terms, survive any termination of employment, shall survive in accordance with their respective terms. Following the Separation Date, the ChannelAdvisor 401(k) Plan administrator will provide Employee with information regarding the distribution and/or rollover of any 401(k) funds.
2.    Ongoing Obligations. Employee acknowledges that all obligations under the applicable ChannelAdvisor Corporation Special Terms and Conditions of Employment by and

2

Exhibit 10.1

between ChannelAdvisor and Employee, dated September 23, 2013 (“Special Terms”), shall continue and shall remain in full force and effect following Employee’s termination in accordance with the terms and conditions of the Special Terms. In particular, Employee understands that all obligations concerning non-disclosure and non-use of confidential information, ownership of confidential information and work product, assistance after employment and non-competition shall continue in accordance with the terms and conditions of the Special Terms. Employee acknowledges that Employee will abide by the terms set forth in the Special Terms, including without limitation the terms regarding noncompetition, non-disclosure and non-use of confidential information.
3.    Pre-Employment Excluded Work Product. If Employee listed certain excluded pre-employment work product or creation (collectively, “Excluded Work Product”) from ChannelAdvisor Ownership in Employee’s Special Terms, Employee represents and warrants that no Excluded Work Product, as defined in the Special Terms, was ever included in any product, process, methodology, service, or machine that Employee worked on or worked in conjunction with while employed with ChannelAdvisor. Without limiting the preceding, if in the course of Employee’s employment with ChannelAdvisor, Employee incorporated, whether intentional or incidental, Excluded Work Product into a ChannelAdvisor product, process, methodology, service, or machine, ChannelAdvisor is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, fully-paid, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, make (and own) derivative works of, publicly perform, use, sell, import, and exercise any and all present and future rights in such Excluded Work Product
4.    Return of Property. By the Separation Date, Employee shall return to ChannelAdvisor all property of ChannelAdvisor, whether tangible or intangible, in Employee’s possession or control, including without limitation, the ChannelAdvisor laptop computer Employee has been using, electronic storage devices, and any other equipment provided by ChannelAdvisor (without deletion of any information stored thereon), company credit cards and calling cards, ChannelAdvisor office keys, and any documents, books, rolodexes (in paper or electronic form), or other information, and all copies thereof. Please coordinate return of ChannelAdvisor property with [_____]. Employee represents that as of the Separation Date, Employee does not have any other ChannelAdvisor equipment, materials, resources or confidential information in Employee’s possession or under Employee’s control. Receipt of the payments and benefits described in this Severance Agreement is expressly conditioned upon return of all ChannelAdvisor property.
5.    Confidentiality. The provisions of this Severance Agreement will be held in strictest confidence by Employee and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) Employee may disclose this Severance Agreement to Employee’s immediate family; (b) Employee may disclose this Severance Agreement in confidence to Employee’s attorney, accountant, auditor, tax preparer, and financial advisor; and (c) Employee may disclose this Severance Agreement to the extent required by law, a governmental investigatory agency or legal process.
6.    Nondisparagement. Employee agrees not to disparage ChannelAdvisor or ChannelAdvisor’s attorneys, directors, managers, partners, employees, agents and affiliates, in any

3

Exhibit 10.1

manner likely to be harmful to them or their business, business reputation or personal reputation; provided that Employee may respond accurately and fully to any question, inquiry or request for information by a governmental investigatory agency or when required by legal process. ChannelAdvisor and its directors, officers and employees agree not to disparage Employee in any manner likely to be harmful to the goodwill and good reputation of Employee, provided that ChannelAdvisor may respond accurately and fully to any question, inquiry, or request for information when required by a governmental investigatory agency or legal process.
7.    Inquiries. In consideration of the payments and benefits provided to Employee by this Severance Agreement, Employee agrees to answer from time to time, inquiries from ChannelAdvisor related to work undertaken by Employee during Employee’s employment with ChannelAdvisor.
8.    Waiver and Release.
a.In consideration of the payments and benefits made pursuant to this Severance Agreement the sufficiency of which is hereby acknowledged, Employee hereby voluntarily, willingly, absolutely, unconditionally and irrevocably, fully releases and discharges ChannelAdvisor (and its officers, directors, employees, agents and representatives) of and from any and all debts, demands, actions, causes of action, suits, promises, representations, contracts, obligations, claims, counterclaims, defenses, rights of setoff, demands or liability whatsoever of every name and nature, both at law and in equity including, by way of example and not limitation, rights and claims arising under [[Applicable only if over 40] the Age Discrimination in Employment Act (the “ADEA”) of 1967, as amended, the Older Worker Benefit Protection Act, ] Title VII of the Civil Rights Act of 1964, as amended, Sections 1981 - 1983 of Title 42 of the United States Code, the Equal Pay Act of 1963, as amended, the Americans with Disabilities Act, and any other applicable state and federal employment discrimination laws, breach of contract (including without limitation breach of contract to provide Employee with additional stock in ChannelAdvisor), unpaid expenses or benefits, wrongful discharge, interference with contract, breach of any ChannelAdvisor policy, practice or procedure, negligence, the Employee Income Retirement Security Act of 1974, as amended, loss of consortium, loss of fringe benefits, fraud, misrepresentation, defamation and/or all other claims of tortious conduct which Employee or Employee’s successors in interest or assigns now have, ever have had, or can, shall or may have, as of the date hereof, whether known or unknown, suspected or unsuspected, against ChannelAdvisor arising from or in any manner related to Employee’s employment, or the termination thereof, for whatever cause, or arising from or relating to any other event occurring prior to the date Employee executes this Severance Agreement; provided however that this waiver and release does not cover any claim Employee may have for breach of the terms of this Severance Agreement by ChannelAdvisor and does not effect Employee’s right and ability to enforce the terms of this Severance Agreement. Employee represents that Employee has no lawsuits, claims or actions pending in Employee’s name, or on behalf of any other person or entity, against ChannelAdvisor or any other person or entity subject to the release granted in this Paragraph. Notwithstanding the foregoing, Employee is not releasing ChannelAdvisor from any claims that cannot be waived by law, Employee is not releasing ChannelAdvisor from any obligation undertaken in any preexisting obligation to indemnify Employee pursuant to ChannelAdvisor articles and bylaws or applicable

4

Exhibit 10.1

law, and Employee is not waiving Employee’s right to make any claim, charge or complaint with any governmental agency or participate in an investigation by any such agency. Employee is waiving, however, Employee’s right to any monetary or other relief if any governmental agency or entity, including without limitation the U.S. Equal Employment Opportunity Commission or the federal or a state department of labor, pursues any claims on Employee’s behalf.
b.In consideration of the execution of this Severance Agreement by Employee, ChannelAdvisor hereby voluntarily, willingly, absolutely, unconditionally and irrevocably, releases and discharges Employee of and from any and all debts, demands, actions, causes of action, suits, promises, representations, contracts, obligations, claims, counterclaims, defenses, rights of setoff; demands or liability whatsoever of every name and nature, both at Law and in Equity which ChannelAdvisor or its successors in interest or assigns now have, ever have had, or can, shall or may have, whether known or unknown, suspected or unsuspected, against Employee arising from or in any manner related to Employee’s employment, or the termination thereof, for whatever cause, or arising from or relating to any other event occurring prior to the date hereof. ChannelAdvisor represents that ChannelAdvisor has no lawsuits, claims or actions pending in ChannelAdvisor’s name, or on behalf of any person or entity, against the Employee or any other person or entity subject to the release granted in this Paragraph. ChannelAdvisor warrants and covenants it shall maintain for at least six (6) years following Employee’s Termination Date, liability insurance coverage (Director’s and Officer’s liability insurance coverage or tail coverage), sufficient to cover (but no less than $3 million dollars) Employee’s actions as a director and/or officer of ChannelAdvisor with respect to matters arising prior to or as of Employee’s Termination Date.
9.    ADEA Waiver. [Applicable only if over 40] Employee acknowledges that Employee is knowingly and voluntarily waiving and releasing any rights Employee may have under the ADEA, as amended. Employee also acknowledges that (i) the consideration given to Employee in exchange for the waiver and release in this Severance Agreement is in addition to anything of value to which Employee was already entitled, and (ii) that Employee has been paid for all time worked and has received all the leave, leaves of absence and leave benefits and protections for which Employee is eligible. Employee further acknowledges that Employee has been advised by this writing that: (a) Employee’s waiver and release do not apply to any rights or claims that may arise after the execution date of this Severance Agreement; (b) Employee has been advised hereby that Employee should consult with an attorney prior to executing this Severance Agreement; (c) Employee twenty-one (21) days to consider this Severance Agreement (although Employee may choose to voluntarily execute this Severance Agreement earlier and, if Employee does, Employee will sign the Consideration Period waiver below); (d) Employee has seven (7) days following Employee’s execution of this Severance Agreement to revoke the Severance Agreement in writing actually delivered to [_____] at ChannelAdvisor; and (e) this Severance Agreement shall not be effective until the date upon which the revocation period has expired unexercised, which shall be the eighth day after this Severance Agreement is executed by Employee (the “Effective Date”).
10.    No Admission. This Severance Agreement does not constitute an admission by ChannelAdvisor of any wrongful action or violation of any federal, state, or local statute, or common

5

Exhibit 10.1

law rights, including without limitation those relating to the provisions of any law or statute concerning employment actions, or of any other possible or claimed violation of law or rights.
11.    Breach. Employee agrees that upon any breach of this Severance Agreement by Employee, Employee will forfeit all amounts paid or owing to Employee under this Severance Agreement and ChannelAdvisor will be relieved of its obligations hereunder except to the extent that such forfeiture and relief would result in an invalidation of the release set forth above.  Further, Employee acknowledges that it may be impossible to assess the damages caused by Employee’s violation of the terms of Paragraphs 4 to 11 of this Severance Agreement and further agrees that any threatened or actual violation or breach of those paragraphs of this Severance Agreement will constitute immediate and irreparable injury to ChannelAdvisor.  Employee therefore agrees that any such breach of this Severance Agreement is a material breach of this Severance Agreement, and, in addition to any and all other damages and remedies available to ChannelAdvisor upon Employee’s breach of this Severance Agreement, ChannelAdvisor shall be entitled to an injunction to prevent Employee from violating or breaching this Severance Agreement.
12.    Reliance. Employee acknowledges and represents that in executing this Severance Agreement Employee is not relying, and has not relied, upon any representation or statement not expressly stated in this Severance Agreement made by ChannelAdvisor, its agents, employees, representatives, or agents with regard to the subject matter of this Severance Agreement
13.    Waiver. No waiver of any right or remedy with respect to any occurrence or event shall be valid unless it is in writing and executed by the waiving party, and further no such valid waiver shall be deemed a waiver of such right or remedy with respect to such occurrence or event in the future, and shall not excuse a subsequent breach of the same term.
14.    Successors and Assigns. This Severance Agreement is binding upon the parties hereto, and their respective heirs, successors and assigns.
15.    Legal Review. Both parties have had an opportunity for legal review of all terms of this Severance Agreement. The parties agree that in interpreting any issues which may arise, any rules of construction related to who prepared the Severance Agreement shall be inapplicable, each party having contributed or having had the opportunity to contribute to clarify any issue.
16.    Severability; Entire Agreement. Each provision of this Severance Agreement is severable from every other provision of this Severance Agreement. Any provision of this Severance Agreement that is determined by any court of competent jurisdiction to be invalid or unenforceable will not affect the validity or enforceability of any other provision hereof or the invalid or unenforceable provision in any other situation or in any other jurisdiction. Any provision of this Severance Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. Employee acknowledges that this Severance Agreement, together with any agreements specifically referenced herein, contains the entire agreement of the parties with respect to the subject matter hereof. Any agreement between the parties purporting to amend a term or condition of this Severance Agreement shall be in writing and shall specifically identify the paragraph number of the term or condition to be changed, as well as state the parties’ specific intent to amend that term or condition.

6

Exhibit 10.1

Please return this signed Severance Agreement by _________________, otherwise, this Severance Agreement shall expire and Employee will forfeit any and all right to the considerations described above.
IN WITNESS WHEREOF, each of the parties to this Severance Agreement has freely and knowingly executed this Severance Agreement.
EMPLOYEE

By:   
Name: __________________________
Date:   
Forwarding Address:
   
   

CHANNELADVISOR CORPORATION

By:   
Name: __________________________
Its:    






7

Exhibit 10.1


Applicable only if over 40
CONSIDERATION PERIOD
I, ___________________, understand that I have the right to take at least 21 days to consider whether to sign this Severance Agreement, which I received on _________________, 201[_]. If I elect to sign this Severance Agreement before 21 days have passed, I understand I am to sign and date below this paragraph to confirm that I knowingly and voluntarily agree to waive the 21 day consideration period.
AGREED:
            
Employee Signature    Date


8

Exhibit 10.1

Exhibit A
Employee Vested Equity Incentive Awards



Exhibit 10.2


AMENDED AND RESTATED EXECUTIVE SEVERANCE AND CHANGE IN CONTROL LETTER AGREEMENT


Dear Beth:

This Amended and Restated Executive Severance and Change in Control Letter Agreement (the “Agreement”) is made and entered into effective as of August 8, 2019 by and between ChannelAdvisor Corporation (“ChannelAdvisor”) and Elizabeth Segovia (“You”) to set forth certain obligations if Your employment with ChannelAdvisor is terminated under different scenarios. This Agreement amends and restates in its entirety the Executive Change in Control Letter Agreement between you and ChannelAdvisor dated February 11, 2019, and is effective as of the date above.

1.Definitions
“Award” shall mean any rights held by You to receive shares of ChannelAdvisor stock under a ChannelAdvisor equity incentive plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Performance Stock Award, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, or any Other Stock Award, each as defined in the applicable ChannelAdvisor equity incentive plan.
“Change in Control” shall have the meaning stated in the ChannelAdvisor Corporation 2013 Equity Incentive Plan, as amended from time to time. If required for compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), in no event will a Change in Control be deemed to have occurred if such transaction is not also a “change in the ownership or effective control of” ChannelAdvisor or “a change in the ownership of a substantial portion of the assets of” ChannelAdvisor as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). ChannelAdvisor may, in its sole discretion and without Your consent, amend the definition of “Change in Control” to conform to the definition of “Change in Control” under Section 409A of the Code, and the regulations thereunder.
“For Cause” termination shall mean the termination of Your employment for (i) Your conviction of, or plea of nolo contendere to, a felony involving fraud, moral turpitude or dishonesty; (ii) Your willful participation in a fraud or act of dishonesty against ChannelAdvisor, or Your breach of Your fiduciary duty to ChannelAdvisor, which results in material harm or damage to ChannelAdvisor; (iii) willful violation of a reasonable ChannelAdvisor written policy that causes material harm or damage to ChannelAdvisor that is not cured within thirty days after written notice thereof; (iv) Your intentional damage to ChannelAdvisor’s real and intellectual property which results in harm to ChannelAdvisor; (v) Your death; or (vi) Your physical or mental inability to perform substantially all of Your duties for a period of one hundred eighty (180) days, whether or not consecutive, during any 365-day period.



Exhibit 10.2


“Good Reason” termination shall mean the termination of Your employment by Your resignation in the following circumstances: (i) the forced relocation of You to a location that is outside of a thirty (30) mile radius of Morrisville, NC; or (ii) a material reduction in Your total compensation which is not a part of a general reduction or other concessionary arrangement affecting all employees or affecting all senior executive officers on a pro rata, equitable basis. For each event listed in (i) and (ii) above, You shall give ChannelAdvisor notice thereof within ninety (90) days of the initial existence of the event, after which date ChannelAdvisor shall have no less than thirty (30) days to cure the event which would otherwise constitute Good Reason and You must terminate Your employment with the Company for such Good Reason no later than one (1) year after the initial existence of the event giving rise to Good Reason.
“Resignation” shall mean Your resignation of employment from ChannelAdvisor in circumstances other than Good Reason.
“Termination Date” shall mean the date Your employment at ChannelAdvisor ends.
2.    Compensation and Benefits Upon Termination
(A)    By ChannelAdvisor For Cause or by You Upon Resignation
If ChannelAdvisor terminates Your employment For Cause or You submit Your Resignation, You shall not be entitled to any of the severance benefits in Sections 2(B) or 2(C) below. However, on the next regularly scheduled payroll date after the Termination Date, ChannelAdvisor shall pay You (i) all earned and unpaid salary and variable compensation, if any, payable pursuant to the applicable variable compensation plan, through the Termination Date; (ii) all accrued and unused vacation time in accordance with ChannelAdvisor policies; and (iii) all of Your outstanding business expenses incurred through the Termination Date pursuant to ChannelAdvisor policies, provided that You submit invoices in accordance with ChannelAdvisor policies (collectively, the “Employment Termination Payments”).
(B)    By ChannelAdvisor other than for Cause or by You for Good Reason
If ChannelAdvisor terminates Your employment, other than For Cause, or You terminate Your employment for Good Reason, and provided that such termination of employment constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h)) (a “Separation From Service”), You will receive the Employment Termination Payments, and, subject to Your execution and nonrevocation within the permitted revocation period of a waiver and release in substantial conformity with the form attached hereto as Attachment 1 (“Severance Agreement”):
i.
ChannelAdvisor shall pay to You a payment equal to six (6) months of Your base compensation (“Base Compensation”) plus one month of Your Base Compensation for each Year of Service up to a total maximum of twelve (12) months of Base Compensation. A “Year of Service” means a calendar year

2

Exhibit 10.2


of service You complete from the date of Your hire until the Termination Date, rounded up to the nearest whole year if You are 6 months and a day or more into the next Year of Service.
In addition, ChannelAdvisor shall pay to You either:
(a)    if Your compensation includes a quarterly variable incentive component and the Termination Date is not the last day of the calendar quarter, then one calendar quarter of Your then current quarterly variable incentive compensation calculated at 100% achievement; OR
(b)     if Your compensation includes an annual variable incentive compensation component and the Termination Date is not the last day of the calendar year, a prorated share (for the period from the beginning of the calendar year to the Termination Date) of Your then current annual variable compensation calculated at 100% achievement.
Payment of the amounts in this Section 2(B)(1) shall be made in a one-time lump sum payment on the next available regularly scheduled payroll date within sixty (60) days following the Termination Date.
1.
If You timely and properly elect COBRA continuation coverage under ChannelAdvisor’s group health plan for medical or dental coverage, ChannelAdvisor shall pay the monthly premium for the coverage directly to the insurance provider for a period of up to 12 months following the Termination Date. If You receive subsequent employment that includes one or both of these benefits, then upon the first date You are eligible to receive the benefits, You shall promptly notify ChannelAdvisor in writing. Upon receipt of Your notice, ChannelAdvisor shall cease payment for any benefits that are provided by Your new employer. If You delay in notifying ChannelAdvisor of a change in benefits status, You shall promptly return all overpayments.
2.
ChannelAdvisor shall accelerate vesting of all of the Awards that are unvested as of the Termination Date by one quarter of a year (3 months).
3.
ChannelAdvisor shall extend the exercise period for the Awards until two (2) years from the Termination Date, but in no event will the exercise period extend beyond the original term of the Award.
(C)    Termination in Connection with Change in Control Event
If there is a Change in Control, and if, within the period during the two (2) months before or the twelve (12) months after the Change in Control, ChannelAdvisor (or the acquiring entity) (i) terminates Your employment, other than For Cause, or (ii) You terminate Your employment for Good Reason, and provided that in each case such termination of

3

Exhibit 10.2


employment constitutes a Separation From Service, You will receive the Employment Termination Payments, and, subject to Your execution and nonrevocation within the permitted revocation period of the Severance Agreement, on the next available regularly scheduled payroll date within sixty (60) days following the Termination Date, ChannelAdvisor shall provide You (1) the benefits in Sections 2(B)(1), (2) and (4) above, and (2) full acceleration of vesting of all Your Awards that are unvested as of the Termination Date, with the effect that all such Awards shall be fully vested and exercisable as of the Termination Date.
3.    Section 280G
(A)Notwithstanding any other provision of this Agreement or any other plan, arrangement or agreement to the contrary, if (i) any of the payments or benefits provided or to be provided by ChannelAdvisor to You or for Your benefit pursuant to the terms of this Agreement or otherwise (“Covered Payments”) constitute “parachute payments” within the meaning of Section 280G of the Code subject to the excise tax imposed under Section 4999 of the Code (or any successor provision) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), and (ii) the aggregate present value of the parachute payments reduced by the Excise Tax would be less than three (3) times Your “base amount” as defined in Section 280G(b)(3) of the Code, then the Covered Payments shall be reduced (but not below zero) to the minimum extent necessary to ensure that no portion of the Covered Payments is subject to the Excise Tax.

(B)Any such reduction shall be made by in accordance with Section 409A of the Code and the following:
(i)
the Covered Payments which do not constitute nonqualified deferred compensation subject to Section 409A of the Code shall be reduced first;
(ii)
all other Covered Payments shall then be reduced as follows: (A) cash payments shall be reduced before non-cash payments; and (B) payments to be made on a later payment date shall be reduced before payments to be made on an earlier payment date; and
(iii)
in the event that accelerated vesting of Awards is to be reduced, such acceleration will be cancelled in the reverse order of the dates on which the Awards were granted.

(C)You shall provide ChannelAdvisor with such information and documents as ChannelAdvisor may reasonably request in order to make a determination under this Section 3.


4

Exhibit 10.2


4.     Compliance with Section 409A of the Code
It is intended that all of the payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulation Sections 1.409A-1(b)(4) and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions. If any of the payments are not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A of the Code, and incorporates by reference all required definitions and payment terms. For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Your right to receive any installment payments under this Agreement (whether severance payments, expense reimbursements or otherwise) will be treated as a right to receive a series of separate payments and, accordingly, each installment payment under this Agreement will at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Agreement, if You are deemed by ChannelAdvisor at the time of Your Separation from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, and if any of the payments, including the severance benefits provided under this Agreement, upon Separation From Service set forth herein and/or under any other agreement with ChannelAdvisor are deemed to be “deferred compensation,” then to the extent delayed commencement of any portion of such payments is required to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code and the related adverse taxation under Section 409A of the Code, such payments will not be provided to You prior to the earliest of (i) the expiration of the six (6)-month period measured from the date of Your Separation From Service with ChannelAdvisor, (ii) the date of Your death or (iii) such earlier date as permitted under Section 409A of the Code without the imposition of adverse taxation. Upon the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Paragraph will be paid in a lump sum to You, and any remaining payments due will be paid as otherwise provided in this Agreement or in the applicable agreement. No interest will be due on any amounts so deferred.
5.    General
ChannelAdvisor shall take any required corporate actions needed as of the Termination Date to insure the acceleration of the Awards and extension of the exercise period as described in this Agreement. This Agreement constitutes the entire agreement between the parties with respect to termination of Your employment with ChannelAdvisor except for that certain ChannelAdvisor Corporation Special Terms and Conditions of Employment between You and ChannelAdvisor dated October 13, 2017, as may be amended from time to time. If there is a conflict between the terms of this and any other agreement between You and ChannelAdvisor, this Agreement shall control. Any amendments to this Agreement and any material changes to Attachment 1 hereto must be in writing and executed by both parties. This Agreement may be entered into by each party in separate counterparts and shall constitute one fully executed Agreement upon execution by both You and ChannelAdvisor. This Agreement shall be construed in accordance with the laws of the State of North Carolina, without regard to conflict of laws principles. If the parties enter into legal proceedings in

5

Exhibit 10.2


dispute of any of the terms of this Agreement, the losing party shall pay all reasonable legal fees of the prevailing party. This Agreement is binding upon ChannelAdvisor’s successors (whether by merger, sale of stock, or sale of all or substantially all its assets) and assigns.
Sincerely,
CHANNELADVISOR CORPORATION
/s/ David J. Spitz    
David J. Spitz
Chief Executive Officer
Accepted and agreed to by:

/s/ Elizabeth Segovia    
Elizabeth Segovia



6

Exhibit 10.2


Attachment 1 to the Agreement

SEVERANCE AGREEMENT
This Severance Agreement (“Severance Agreement”), containing a release and waiver among other terms, is made as of the ________ day of _________________________, by and between ________________ (“Employee”) and ChannelAdvisor Corporation, for the benefit of its employees, officers, directors, successors and assigns (collectively and individually, “ChannelAdvisor”).
1.    Separation. Employee’s last day of work with ChannelAdvisor and Employee’s employment termination date will be____________________ (the “Separation Date”).
2.    Payment to Employee.
a.Accrued Compensation. Employee agrees that, upon payment by ChannelAdvisor of Employee’s earned salary and variable compensation, if any, payable pursuant to the applicable variable compensation plan through the Separation Date (collectively, “Compensation”), Employee has received from ChannelAdvisor all compensation due to Employee. Employee further agrees that Employee will be paid for all accrued and unused vacation time due to Employee in accordance with ChannelAdvisor policies. The ChannelAdvisor vacation policy is that upon termination, eligible employees are paid for accrued but unused vacation, up to a maximum of 40 hours. Employee will receive these Compensation and vacation payments on the first regular pay date following the Separation Date in accordance with ChannelAdvisor’s normal pay cycle, regardless of whether or not Employee signs this Severance Agreement.
b.Expense Reimbursements. If Employee has been issued any ChannelAdvisor credit or calling cards, ChannelAdvisor will cancel these card(s) effective as of the Separation Date. Employee agrees that, on the Separation Date, Employee will submit Employee’s final documented expense reimbursement statement reflecting all business expenses Employee incurred through the Separation Date, if any, for which Employee seeks reimbursement. ChannelAdvisor will reimburse Employee for reasonable business expenses pursuant to ChannelAdvisor’s regular business practice. Employee will receive these payments regardless of whether or not Employee signs this Severance Agreement.
c.Severance Payment and Benefits. In accordance with and subject to the terms of that certain Executive Severance and Change in Control Letter Agreement between Employee and ChannelAdvisor dated _________________ (the “Agreement”) in particular, the requirement that this Severance Agreement becomes effective by the twenty-ninth (29th) day following the Separation Date as provided in Paragraph 11 of this Severance Agreement, ChannelAdvisor will:
a.
pay Employee an amount equal to $___________ pursuant to Section 2(B)(1) of the Agreement, which total amount shall be paid in a one-time lump sum payment on the next available regularly scheduled payroll date within sixty (60) days following the Separation Date, and,

1

Exhibit 10.2


b.
if Employee timely and properly elects COBRA continuation coverage under ChannelAdvisor’s group health plan for medical or dental coverage, ChannelAdvisor will pay the monthly premium for the coverage directly to the insurance provider for a period of up to 12 months. If Employee receives subsequent employment that includes one or both of these benefits, then upon the first date Employee is eligible to receive the benefits, Employee shall promptly notify ChannelAdvisor in writing. Upon receipt of Employee’s notice, ChannelAdvisor shall cease payment for any benefits that are being provided by Employee’s new employer. If Employee delays in notifying ChannelAdvisor of the change in benefits status, Employee shall promptly return all overpayments.
(a)    Withholding. Employee agrees that all payments made pursuant to this Paragraph are compensation income and that ChannelAdvisor will make these payments net of applicable withholding and other employment related taxes, with withholding on payments under Paragraph 2(c) shall be made at the lower of Employee’s normal withholding rate or the statutory rate for supplemental wages.
(b)    No Other Payments Related to Employment. Employee agrees that upon payment of the amounts specified in Paragraphs 2(a), (b) and (c) no further amounts (including without limitation base salary, bonus, incentive or variable compensation, equity, severance or benefits) are due to Employee from ChannelAdvisor for any cause or reason with respect to, related to, or arising from Employee’s employment with ChannelAdvisor after the Separation Date except as otherwise set forth in this Severance Agreement.
(c)    Awards. Exhibit A states the number of Awards (as defined in the Agreement) held by Employee to receive shares of ChannelAdvisor stock under a ChannelAdvisor equity incentive plan and vested as of the Separation Date, after giving effect to any applicable acceleration provisions in the Agreement relating to the Awards. Upon expiration of an Award, Employee shall have no further rights under the Award.
1.    Worker’s Compensation, 401(k) Plan and other Benefits. Employee understands that this Severance Agreement does not affect any rights Employee may have with respect to any applicable worker’s compensation claims, but represents that as of the execution of this Severance Agreement Employee has no injuries or physical or mental limitations, restrictions or impairments that preclude Employee from working in any way and has not suffered any on-the-job injury for which Employee has not already filed a claim. Employee understands that Employee’s right to participate in all ChannelAdvisor employee benefit plans terminates on the Separation Date, except for continuation of medical and dental coverage as provided herein. Any benefits accrued and vested as of the Separation Date and which, by their express terms, survive any termination of employment, shall survive in accordance with their respective terms. Following the Separation Date, the ChannelAdvisor 401(k) Plan administrator will provide Employee with information regarding the distribution and/or rollover of any 401(k) funds.
2.    Ongoing Obligations. Employee acknowledges that all obligations under the applicable ChannelAdvisor Corporation Special Terms and Conditions of Employment by and

2

Exhibit 10.2


between ChannelAdvisor and Employee, dated __________, 20__ (“Special Terms”), shall continue and shall remain in full force and effect following Employee’s termination in accordance with the terms and conditions of the Special Terms. In particular, Employee understands that all obligations concerning non-disclosure and non-use of confidential information, ownership of confidential information and work product, assistance after employment and non-competition shall continue in accordance with the terms and conditions of the Special Terms. Employee acknowledges that Employee will abide by the terms set forth in the Special Terms, including without limitation the terms regarding noncompetition, non-disclosure and non-use of confidential information.
3.    Pre-Employment Excluded Work Product. If Employee listed certain excluded pre-employment work product or creation (collectively, “Excluded Work Product”) from ChannelAdvisor Ownership in Employee’s Special Terms, Employee represents and warrants that no Excluded Work Product, as defined in the Special Terms, was ever included in any product, process, methodology, service, or machine that Employee worked on or worked in conjunction with while employed with ChannelAdvisor. Without limiting the preceding, if in the course of Employee’s employment with ChannelAdvisor, Employee incorporated, whether intentional or incidental, Excluded Work Product into a ChannelAdvisor product, process, methodology, service, or machine, ChannelAdvisor is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, fully-paid, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, make (and own) derivative works of, publicly perform, use, sell, import, and exercise any and all present and future rights in such Excluded Work Product
4.    Return of Property. By the Separation Date, Employee shall return to ChannelAdvisor all property of ChannelAdvisor, whether tangible or intangible, in Employee’s possession or control, including without limitation, the ChannelAdvisor laptop computer Employee has been using, electronic storage devices, and any other equipment provided by ChannelAdvisor (without deletion of any information stored thereon), company credit cards and calling cards, ChannelAdvisor office keys, and any documents, books, rolodexes (in paper or electronic form), or other information, and all copies thereof. Please coordinate return of ChannelAdvisor property with [_____]. Employee represents that as of the Separation Date, Employee does not have any other ChannelAdvisor equipment, materials, resources or confidential information in Employee’s possession or under Employee’s control. Receipt of the payments and benefits described in this Severance Agreement is expressly conditioned upon return of all ChannelAdvisor property.
5.    Confidentiality. The provisions of this Severance Agreement will be held in strictest confidence by Employee and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) Employee may disclose this Severance Agreement to Employee’s immediate family; (b) Employee may disclose this Severance Agreement in confidence to Employee’s attorney, accountant, auditor, tax preparer, and financial advisor; and (c) Employee may disclose this Severance Agreement to the extent required by law, a governmental investigatory agency or legal process.
6.    Nondisparagement. Employee agrees not to disparage ChannelAdvisor or ChannelAdvisor’s attorneys, directors, managers, partners, employees, agents and affiliates, in any

3

Exhibit 10.2


manner likely to be harmful to them or their business, business reputation or personal reputation; provided that Employee may respond accurately and fully to any question, inquiry or request for information by a governmental investigatory agency or when required by legal process. ChannelAdvisor and its directors, officers and employees agree not to disparage Employee in any manner likely to be harmful to the goodwill and good reputation of Employee, provided that ChannelAdvisor may respond accurately and fully to any question, inquiry, or request for information when required by a governmental investigatory agency or legal process.
7.    Inquiries. In consideration of the payments and benefits provided to Employee by this Severance Agreement, Employee agrees to answer from time to time, inquiries from ChannelAdvisor related to work undertaken by Employee during Employee’s employment with ChannelAdvisor.
8.    Waiver and Release.
a.In consideration of the payments and benefits made pursuant to this Severance Agreement the sufficiency of which is hereby acknowledged, Employee hereby voluntarily, willingly, absolutely, unconditionally and irrevocably, fully releases and discharges ChannelAdvisor (and its officers, directors, employees, agents and representatives) of and from any and all debts, demands, actions, causes of action, suits, promises, representations, contracts, obligations, claims, counterclaims, defenses, rights of setoff, demands or liability whatsoever of every name and nature, both at law and in equity including, by way of example and not limitation, rights and claims arising under [[Applicable only if over 40] the Age Discrimination in Employment Act (the “ADEA”) of 1967, as amended, the Older Worker Benefit Protection Act, ] Title VII of the Civil Rights Act of 1964, as amended, Sections 1981 - 1983 of Title 42 of the United States Code, the Equal Pay Act of 1963, as amended, the Americans with Disabilities Act, and any other applicable state and federal employment discrimination laws, breach of contract (including without limitation breach of contract to provide Employee with additional stock in ChannelAdvisor), unpaid expenses or benefits, wrongful discharge, interference with contract, breach of any ChannelAdvisor policy, practice or procedure, negligence, the Employee Income Retirement Security Act of 1974, as amended, loss of consortium, loss of fringe benefits, fraud, misrepresentation, defamation and/or all other claims of tortious conduct which Employee or Employee’s successors in interest or assigns now have, ever have had, or can, shall or may have, as of the date hereof, whether known or unknown, suspected or unsuspected, against ChannelAdvisor arising from or in any manner related to Employee’s employment, or the termination thereof, for whatever cause, or arising from or relating to any other event occurring prior to the date Employee executes this Severance Agreement; provided however that this waiver and release does not cover any claim Employee may have for breach of the terms of this Severance Agreement by ChannelAdvisor and does not effect Employee’s right and ability to enforce the terms of this Severance Agreement. Employee represents that Employee has no lawsuits, claims or actions pending in Employee’s name, or on behalf of any other person or entity, against ChannelAdvisor or any other person or entity subject to the release granted in this Paragraph. Notwithstanding the foregoing, Employee is not releasing ChannelAdvisor from any claims that cannot be waived by law, Employee is not releasing ChannelAdvisor from any obligation undertaken in any preexisting obligation to indemnify Employee pursuant to ChannelAdvisor articles and bylaws or applicable

4

Exhibit 10.2


law, and Employee is not waiving Employee’s right to make any claim, charge or complaint with any governmental agency or participate in an investigation by any such agency. Employee is waiving, however, Employee’s right to any monetary or other relief if any governmental agency or entity, including without limitation the U.S. Equal Employment Opportunity Commission or the federal or a state department of labor, pursues any claims on Employee’s behalf.
b.In consideration of the execution of this Severance Agreement by Employee, ChannelAdvisor hereby voluntarily, willingly, absolutely, unconditionally and irrevocably, releases and discharges Employee of and from any and all debts, demands, actions, causes of action, suits, promises, representations, contracts, obligations, claims, counterclaims, defenses, rights of setoff; demands or liability whatsoever of every name and nature, both at Law and in Equity which ChannelAdvisor or its successors in interest or assigns now have, ever have had, or can, shall or may have, whether known or unknown, suspected or unsuspected, against Employee arising from or in any manner related to Employee’s employment, or the termination thereof, for whatever cause, or arising from or relating to any other event occurring prior to the date hereof. ChannelAdvisor represents that ChannelAdvisor has no lawsuits, claims or actions pending in ChannelAdvisor’s name, or on behalf of any person or entity, against the Employee or any other person or entity subject to the release granted in this Paragraph. ChannelAdvisor warrants and covenants it shall maintain for at least six (6) years following Employee’s Termination Date, liability insurance coverage (Director’s and Officer’s liability insurance coverage or tail coverage), sufficient to cover (but no less than $3 million dollars) Employee’s actions as a director and/or officer of ChannelAdvisor with respect to matters arising prior to or as of Employee’s Termination Date.
9.    ADEA Waiver. [Applicable only if over 40] Employee acknowledges that Employee is knowingly and voluntarily waiving and releasing any rights Employee may have under the ADEA, as amended. Employee also acknowledges that (i) the consideration given to Employee in exchange for the waiver and release in this Severance Agreement is in addition to anything of value to which Employee was already entitled, and (ii) that Employee has been paid for all time worked and has received all the leave, leaves of absence and leave benefits and protections for which Employee is eligible. Employee further acknowledges that Employee has been advised by this writing that: (a) Employee’s waiver and release do not apply to any rights or claims that may arise after the execution date of this Severance Agreement; (b) Employee has been advised hereby that Employee should consult with an attorney prior to executing this Severance Agreement; (c) Employee twenty-one (21) days to consider this Severance Agreement (although Employee may choose to voluntarily execute this Severance Agreement earlier and, if Employee does, Employee will sign the Consideration Period waiver below); (d) Employee has seven (7) days following Employee’s execution of this Severance Agreement to revoke the Severance Agreement in writing actually delivered to [_____] at ChannelAdvisor; and (e) this Severance Agreement shall not be effective until the date upon which the revocation period has expired unexercised, which shall be the eighth day after this Severance Agreement is executed by Employee (the “Effective Date”).
10.    No Admission. This Severance Agreement does not constitute an admission by ChannelAdvisor of any wrongful action or violation of any federal, state, or local statute, or common

5

Exhibit 10.2


law rights, including without limitation those relating to the provisions of any law or statute concerning employment actions, or of any other possible or claimed violation of law or rights.
11.    Breach. Employee agrees that upon any breach of this Severance Agreement by Employee, Employee will forfeit all amounts paid or owing to Employee under this Severance Agreement and ChannelAdvisor will be relieved of its obligations hereunder except to the extent that such forfeiture and relief would result in an invalidation of the release set forth above.  Further, Employee acknowledges that it may be impossible to assess the damages caused by Employee’s violation of the terms of Paragraphs 4 to 11 of this Severance Agreement and further agrees that any threatened or actual violation or breach of those paragraphs of this Severance Agreement will constitute immediate and irreparable injury to ChannelAdvisor.  Employee therefore agrees that any such breach of this Severance Agreement is a material breach of this Severance Agreement, and, in addition to any and all other damages and remedies available to ChannelAdvisor upon Employee’s breach of this Severance Agreement, ChannelAdvisor shall be entitled to an injunction to prevent Employee from violating or breaching this Severance Agreement.
12.    Reliance. Employee acknowledges and represents that in executing this Severance Agreement Employee is not relying, and has not relied, upon any representation or statement not expressly stated in this Severance Agreement made by ChannelAdvisor, its agents, employees, representatives, or agents with regard to the subject matter of this Severance Agreement
13.    Waiver. No waiver of any right or remedy with respect to any occurrence or event shall be valid unless it is in writing and executed by the waiving party, and further no such valid waiver shall be deemed a waiver of such right or remedy with respect to such occurrence or event in the future, and shall not excuse a subsequent breach of the same term.
14.    Successors and Assigns. This Severance Agreement is binding upon the parties hereto, and their respective heirs, successors and assigns.
15.    Legal Review. Both parties have had an opportunity for legal review of all terms of this Severance Agreement. The parties agree that in interpreting any issues which may arise, any rules of construction related to who prepared the Severance Agreement shall be inapplicable, each party having contributed or having had the opportunity to contribute to clarify any issue.
16.    Severability; Entire Agreement. Each provision of this Severance Agreement is severable from every other provision of this Severance Agreement. Any provision of this Severance Agreement that is determined by any court of competent jurisdiction to be invalid or unenforceable will not affect the validity or enforceability of any other provision hereof or the invalid or unenforceable provision in any other situation or in any other jurisdiction. Any provision of this Severance Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. Employee acknowledges that this Severance Agreement, together with any agreements specifically referenced herein, contains the entire agreement of the parties with respect to the subject matter hereof. Any agreement between the parties purporting to amend a term or condition of this Severance Agreement shall be in writing and shall specifically identify the paragraph number of the term or condition to be changed, as well as state the parties’ specific intent to amend that term or condition.

6

Exhibit 10.2


Please return this signed Severance Agreement by _________________, otherwise, this Severance Agreement shall expire and Employee will forfeit any and all right to the considerations described above.
IN WITNESS WHEREOF, each of the parties to this Severance Agreement has freely and knowingly executed this Severance Agreement.
EMPLOYEE

By:   
Name: __________________________
Date:   
Forwarding Address:
   
   

CHANNELADVISOR CORPORATION

By:   
Name: __________________________
Its:    






7

Exhibit 10.2



Applicable only if over 40
CONSIDERATION PERIOD
I, ___________________, understand that I have the right to take at least 21 days to consider whether to sign this Severance Agreement, which I received on _________________, 201[_]. If I elect to sign this Severance Agreement before 21 days have passed, I understand I am to sign and date below this paragraph to confirm that I knowingly and voluntarily agree to waive the 21 day consideration period.
AGREED:
            
Employee Signature    Date


8

Exhibit 10.2


Exhibit A
Employee Vested Equity Incentive Awards



Exhibit 10.3

SCHEDULE OF COMPENSATION FOR
NON-EMPLOYEE DIRECTORS
Adopted effective as of August 13, 2019

This schedule describes the compensation payable by ChannelAdvisor Corporation (the “Company”) to individuals who are not employed by the Company but serve as members of the Company's Board of Directors. The compensation consists of cash and equity compensation components as described below. In addition, the Company will pay or reimburse directors for reasonable expenses incurred in performing the duties of the director in accordance with the Company's business expense reimbursement policy and procedures. This schedule is not intended to create any contractual obligation with any director and may be amended by the Company at any time.

Cash Compensation:

Annual retainer for indicated role:

Member of the Board of Directors
$50,000
Lead Independent Director
Chair of the Audit Committee
$12,500
$20,000
Chair of the Compensation Committee
$10,000
Chair of the Nominating and Corporate Governance Committee
$6,000
Member of the Audit Committee
$7,000
Member of the Compensation Committee
$5,000
Member of the Nominating and Corporate Governance Committee
$3,000

Each non-employee director will be paid the retainer listed above for membership on the Board of Directors and for each other role in which the director serves. Committee Chairs will receive the retainer for service as chair in lieu of the retainer for committee membership. Effective July 1, 2014, the retainer will be earned on the first day of the fiscal quarter in which the director serves in the indicated role. No adjustment will be made nor any repayment due in the event that a director does not serve in the indicated role for the remainder of the quarter. Retainers are in lieu of meeting fees.

Equity Compensation:

Each non-employee director then serving on the Board will be granted on the first business day of March a restricted stock unit award having a value equal to $150,000 based on the closing price per share of the Company’s common stock two business days before the grant date. The award will be granted pursuant to the Company's 2013 Equity Incentive Plan (the “Plan”). The award vests in full on the first anniversary of the grant date, provided that the director is serving as a member of the Board of Directors or as an employee or Consultant of the Company or an Affiliate under the Plan on the date of vesting. The awards will be awarded only if approved by the Compensation Committee on or before the grant date. Awards will be made pursuant to the applicable form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement as approved by the Compensation Committee from time to time. If there is a Change in Control, as defined in the Plan, and if the director’s service with the Company as a director is terminated in connection with the Change in Control, any unvested awards will vest in full on the termination date.






Exhibit 31.1
CERTIFICATION
I, David J. Spitz, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of ChannelAdvisor Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
November 7, 2019
By:
/s/ David J. Spitz
 
 
 
David J. Spitz
 
 
 
Chief Executive Officer
 
 
 
(principal executive officer)





Exhibit 31.2
CERTIFICATION
I, Richard F. Cornetta, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of ChannelAdvisor Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
November 7, 2019
By:
/s/ Richard F. Cornetta
 
 
 
Richard F. Cornetta
 
 
 
Chief Financial Officer
 
 
 
(principal financial officer)





Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of ChannelAdvisor Corporation (the "Company”) for the quarterly period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers hereby certifies, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.
/s/ David J. Spitz
 
/s/ Richard F. Cornetta
David J. Spitz
 
Richard F. Cornetta
Chief Executive Officer
 
Chief Financial Officer
November 7, 2019
 
November 7, 2019
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, is not being “filed” by the Company as part of the Report or as a separate disclosure document and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.