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 CommerceHub Announces Fourth Quarter and Full Year 2017 Financial Results
   Wednesday, February 28, 2018 4:01:21 PM ET

Revenue for the fourth quarter and full year grows 12% and 11%, respectively

Net income of $3.2 million and adjusted EBITDA of $19.6 million in seasonally strong fourth quarter

Signs Macy’s as a retail drop-ship customer

CommerceHub, Inc. (CHUBA ) (CHUBK ) ("CommerceHub," "we," "us," "our" or the "Company"), a leading distributed commerce network for retailers and brands, today announced financial results for the fourth quarter and full year ended December 31, 2017.

"We had another strong financial performance in the quarter, with core drop-ship revenue increasing 14%, but we are most excited about the January 2018 signing of Macy’s as a new drop-ship retail customer," said Frank Poore, CommerceHub’s Founder, President and CEO. "Macy’s is a storied retail brand with a significant online presence. This new relationship is yet another validation of CommerceHub’s role as strategic partner to many of the largest and most successful retailers online. Drop-shipping and virtual inventory are strategic initiatives at leading retailers, and CommerceHub’s superior platform, solutions and supplier network power our market-leading position."

"The power of our business model was again on display in the fourth quarter, generating $10.7 million of operating cash flow and $10.5 million of free cash flow on $3.2 million of net income and $19.6 million of adjusted EBITDA, while adjusted EBITDA margin expanded to 53%," said Michael Trimarchi, CommerceHub’s CFO. "Full-year 2017 total revenue of $111.1 million grew 11% year-over-year, while net income rose 8% and adjusted EBITDA increased 20%," he continued.

Fourth Quarter 2017 Financial Highlights

-- Revenue was $36.7 million, a 12% increase from $32.9 million in 2016. Core drop-ship revenue was $34.4 million, a 14% increase from $30.2 million in 2016.

-- Gross margin was 85%, compared to 82% in 2016.

-- Adjusted gross margin was 86%, compared to 83% in 2016.

-- Net income was $3.2 million, or $0.07 per diluted share, compared to $6.0 million, or $0.13 per diluted share, in 2016.

-- Adjusted net income was $10.7 million, or $0.23 per diluted share, compared to $8.7 million, or $0.20 per diluted share, in 2016.

-- Adjusted EBITDA was $19.6 million, compared to $16.8 million in 2016.

-- Operating cash flow was $10.7 million, compared to $4.3 million in 2016.

-- Free cash flow was $10.5 million, compared to $3.3 million in 2016.

-- Net cash and cash equivalents at quarter end was $19.8 million.

Full Year 2017 Financial Highlights

-- Revenue was $111.1 million in 2017, an 11% increase from $100.6 million in 2016. Core drop-ship revenue was $102.1 million, a 13% increase from $90.4 million in 2016.

-- Gross margin was 81% in 2017, compared to 77% in 2016.

-- Adjusted gross margin was 81% in 2017, compared to 78% in 2016.

-- Net income was $9.9 million, or $0.22 per diluted share, in 2017, compared to $9.1 million, or $0.21 per diluted share, in 2016.

-- Adjusted net income was $22.0 million, or $0.49 per diluted share in 2017, compared to $17.6 million, or $0.40 per diluted share, in 2016.

-- Adjusted EBITDA was $45.4 million in 2017, compared to $37.8 million in 2016.

-- Operating cash flow was $38.1 million in 2017, compared to negative $48.1 million in 2016.

-- Free cash flow was $35.5 million in 2017, compared to negative $57.7 million in 2016.

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

Other Recent Highlights

-- Total customer count at December 31, 2017 was approximately 11,600, up 15% year-over-year from approximately 10,100 at December 31, 2016.

-- Drop-ship order volume grew 15% in the fourth quarter of 2017 and 16% for the full year of 2017, compared to the same periods in 2016.

-- We expanded our CommerceHub for Retailers network with the signing of Macy’s, a top 10 online retailer, as a new drop-ship customer in January 2018. This win is a conversion of an existing in-house drop-ship program, which we believe demonstrates the complexity of such programs and the value CommerceHub can deliver through increased operational efficiencies, improved customer service and capital-efficient expansion of product assortments.

Conference Call Details

The Company will offer a live conference call, and a live, listen-only webcast of the call via the CommerceHub Investor Relations website at 4:30 p.m., E.T., today, Wednesday, February 28, 2018. See http://ir.commercehub.com/events.cfm ,">http://ir.commercehub.com/events.cfm , where supporting materials, including a presentation and supplemental financial data, have been posted.

Live Call:                 U.S./Canada Toll-Free Participants Dial-in Number: (800) 219-6912
                           International Toll Participants Dial-in Number: (574) 990-1026
                           Conference ID/Passcode: 5492517
Webcast (live and replay): http://ir.commercehub.com/events.cfm 

About CommerceHub:

CommerceHub is a distributed commerce network connecting supply, demand and delivery that helps retailers and brands increase sales by expanding product assortments, promoting products on the channels that perform, and enabling rapid, on-time customer delivery. With its robust platform and proven scalability, CommerceHub helped over 11,500 retailers, brands, and distributors achieve an estimated $16 billion in Gross Merchandise Value in 2017.

Important Information Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about future business strategies, future financial performance, cost savings, market conditions and potential, future growth of ecommerce, customer growth and performance, sales channel expansion and other matters that are not historical facts. These statements involve risks, uncertainties, estimates and assumptions, many of which are beyond our control, that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, market acceptance and performance of our products and services, competitive issues, general market conditions, regulatory matters and changes in law affecting our business and the risk factors described in our most recent Annual Report on Form 10-K under Item 1A "Risk Factors." Further, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all potential risks or assess their potential effects on our business. These forward-looking statements speak only as of the date of this press release, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any such statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. There can be no assurance that any expectation or belief expressed in a forward-looking statement will occur, and you should not place undue reliance on any forward-looking statements. Please refer to our public filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, for additional information about us and the risks and uncertainties we face that may affect the forward-looking statements made in this press release.

Statement Regarding Non-GAAP Financial Measures

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

CommerceHub Investor Relations Contact

Sara Leggat

investor@commercehub.com

CommerceHub, Inc.
Consolidated Statements of Operations
(in thousands except per share data)
(unaudited)
                              3 months ended:             12 months ended:
                              12/31/17      12/31/16      12/31/17       12/31/16
   Revenue                    $  36,731     $  32,881     $  111,121     $  100,552
   Cost of revenue               5,417         5,895         21,600         23,057
   Gross profit                  31,314        26,986        89,521         77,495
   Gross margin                  85     %      82     %      81      %      77      %
   Research and development      6,814         5,796         25,559         19,187
   Sales and marketing           1,826         2,310         8,576          11,334
   General and administrative    7,634         7,075         28,920         30,282
   Operating expenses            16,274        15,181        63,055         60,803
   Operating income              15,040        11,805        26,466         16,692
   Interest expense, net         (128   )      (302   )      (732    )      (434    )
   Pre-tax income                14,912        11,503        25,734         16,258
   Income tax expense            11,746        5,551         15,876         7,162
   Net income                 $  3,166      $  5,952      $  9,858       $  9,096
   Earnings per share:
   Basic                      $  0.07       $  0.14       $  0.23        $  0.21
   Diluted                    $  0.07       $  0.13       $  0.22        $  0.21
   Share count:
   Basic                         43,391        42,876        43,204         42,831
   Diluted                       45,864        44,408        45,230         44,343
CommerceHub, Inc.
Consolidated Balance Sheets
(in thousands)
(unaudited)
                                           12/31/17     12/31/16
    Assets
    Cash and cash equivalents              $    19,841  $    6,471
    Accounts receivable, net of allowances      21,310       18,109
    Prepaid income taxes                        -            4,311
    Prepaid expenses                            1,652        1,549
    Total current assets                        42,803       30,440
    Capitalized software, net                   2,850        6,716
    Deferred services costs                     4,853        4,989
    Property and equipment, net                 6,066        7,629
    Goodwill                                    21,410       21,410
    Deferred income taxes                       5,798        7,714
    Other long-term assets                      1,339        1,122
    Total assets                           $    85,119  $    80,020
    ???
    Liabilities and Equity
    Accounts payable and accrued expenses  $    3,360   $    2,135
    Accrued payroll and related expenses        9,429        7,435
    Income taxes payable                        962          7
    Deferred revenue                            5,339        5,149
    Total current liabilities                   19,090       14,726
    Deferred revenue, long-term                 8,272        7,581
    Other long-term liabilities                 3,210        1,135
    Long-term debt                              -            26,000
    Total liabilities                           30,572       49,442
    ???
    Equity:
    Total equity                                54,547       30,578
    Total liabilities and equity           $    85,119  $    80,020
CommerceHub, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
                                                        3 months ended:              12 months ended:
                                                        12/31/17      12/31/16       12/31/17       12/31/16
   Cash flows from operating activities
   Net income                                           $  3,166      $  5,952       $  9,858       $  9,096
   Adjustments to net income:
   Depreciation and amortization                           1,754         2,488          8,032          9,803
   Amortization of debt issuance costs                     55            56             221            111
   Share-based compensation                                1,643         2,537          8,629          11,290
   Deferred income taxes                                   5,307         4,311          3,571          21,326
   Bad debt expense                                        338           (66     )      1,269          629
   Accrued interest income                                 -             -              -              (273    )
   Impairment and loss on disposal of long-term assets     100           19             310            179
   Working capital changes:
   Accounts receivable                                     (9,120 )      (7,993  )      (4,470  )      (2,326  )
   Prepaid expenses and other assets                       255           357            (532    )      (599    )
   Income taxes, net                                       4,008         (5,114  )      5,266          (4,304  )
   Deferred costs                                          45            168            136            (33     )
   Deferred revenue                                        (366   )      442            883            708
   Accounts payable and accrued expenses                   811           (313    )      2,210          166
   Accrued payroll and related expenses                    2,722         1,485          2,718          1,901
   Share-based compensation liability payments             -             -              -              (86,684 )
   Parent receivables and payables, net                    -             -              -              (9,112  )
   Net cash provided by (used in) operating activities     10,718        4,329          38,101         (48,122 )
   Cash flows from investing activities
   Purchases of property and equipment                     (156   )      (482    )      (1,315  )      (4,995  )
   Additions to capitalized software                       (109   )      (582    )      (1,247  )      (4,545  )
   Collections on note receivable - Parent                 -             -              -              36,380
   Net cash (used in) provided by investing activities     (265   )      (1,064  )      (2,562  )      26,840
   Cash flows from financing activities
   Borrowings on revolver                                  -             -              -              50,000
   Repayments on revolver                                  -             (15,000 )      (26,000 )      (24,000 )
   Cash paid for debt issuance costs                       -             -              -              (1,100  )
   Purchase of treasury stock                              -             -              -              (3,600  )
   Cash received from exercise of stock options            872           598            3,289          846
   Cash received from employee stock purchase plan         -             -              464            -
   Cash received from deferred stock units                 75            -              75             -
   Borrowings on note payable - Parent                     -             -              -              28,664
   Payments on note payable - Parent                       -             -              -              (28,664 )
   Contributions from Parent                               -             -              -              6,000
   Dividends paid to Parent and others                     -             -              -              (19,730 )
   Net cash provided by (used in) financing activities     947           (14,402 )      (22,172 )      8,416
   Currency effect on cash and cash equivalents            3             -              3              -
   Net increase (decrease) in cash and cash equivalents    11,403        (11,137 )      13,370         (12,866 )
   Beginning cash and cash equivalents                     8,438         17,608         6,471          19,337
   Ending cash and cash equivalents                     $  19,841     $  6,471       $  19,841      $  6,471
CommerceHub, Inc.
Supplemental Information
(in thousands)
(unaudited)
                                           3 months ended:                                                                                         12 months ended:
                                           12/31/17                                 12/31/16                                 % Inc (Dec)           12/31/17                                 12/31/16                                 % Inc (Dec)
  Revenue by type: (1)
  Core drop-ship revenue:
  Order fee revenue                        $                  22,573                $                  19,569                15                 %  $                  59,788                $                  52,095                15                 %
  Subscription and other platform revenue                     9,797                                    9,195                 7                  %                     35,224                                   32,617                8                  %
  Set-up and professional services revenue                    1,987                                    1,387                 43                 %                     7,047                                    5,692                 24                 %
  Total core drop-ship revenue                                34,357                                   30,151                14                 %                     102,059                                  90,404                13                 %
  Demand channel revenue                                      2,374                                    2,730                 -13                %                     9,062                                    10,148                -11                %
  Total                                    $                  36,731                $                  32,881                12                 %  $                  111,121               $                  100,552               11                 %
  Drop-ship order count growth                                15                 %                     16                 %                                           16                 %                     16                 %
  (1) In the fourth quarter of 2017, we updated the way in which we present revenue by type. To provide additional clarity over this change, we have provided supplemental revenue disclosures at the end of this earnings release to disclose our historical revenue by type for the periods presented above, as well as amounts previously reported that conform to our current presentation of revenue by type.
                                           3 months ended:                                                                                         12 months ended:
                                           12/31/17                                 12/31/16                                                       12/31/17                                 12/31/16
  Share-based compensation:
  Cost of revenue                          $                  97                    $                  105                                         $                  396                   $                  (102               )
  Research and development                                    341                                      564                                                            1,728                                    2,261
  Sales and marketing                                         5                                        130                                                            553                                      834
  General and administrative                                  1,200                                    1,738                                                          5,952                                    8,297
  Total                                    $                  1,643                 $                  2,537                                       $                  8,629                 $                  11,290
CommerceHub, Inc.
GAAP to Non-GAAP Reconciliations
(in thousands)
(unaudited)
  Reconciliation of GAAP gross profit to adjusted gross profit:
                                              3 months ended:                                       12 months ended:
                                              12/31/17                   12/31/16                   12/31/17                   12/31/16
  Gross profit                                $           31,314         $           26,986         $           89,521         $           77,495
  Share-based compensation                                97                         105                        396                        (102        )
  Acquisition-related intangible amortization             -                          188                        -                          750
  Restructuring charges (1)                               246                        -                          486                        -
  Adjusted gross profit                       $           31,657         $           27,279         $           90,403         $           78,143
  Adjusted gross margin                                   86          %              83          %              81          %              78          %
  Reconciliation of GAAP operating expenses to adjusted operating expenses:
                                              3 months ended:                                       12 months ended:
                                              12/31/17                   12/31/16                   12/31/17                   12/31/16
  Operating expenses                          $           16,274         $           15,181         $           63,055         $           60,803
  Share-based compensation                                (1,546      )              (2,432      )              (8,233      )              (11,392     )
  Acquisition-related intangible amortization             -                          (250        )              -                          (1,000      )
  Restructuring charges (1)                               (957        )              -                          (1,793      )              -
  Adjusted operating expenses                 $           13,771         $           12,499         $           53,029         $           48,411
  Reconciliation of GAAP net income to adjusted EBITDA:
                                              3 months ended:                                       12 months ended:
                                              12/31/17                   12/31/16                   12/31/17                   12/31/16
  Net income                                  $           3,166          $           5,952          $           9,858          $           9,096
  Interest expense, net                                   128                        302                        732                        434
  Income tax expense                                      11,746                     5,551                      15,876                     7,162
  Depreciation and amortization                           1,754                      2,488                      8,032                      9,803
  Share-based compensation                                1,643                      2,537                      8,629                      11,290
  Restructuring charges (1)                               1,203                      -                          2,279                      -
  Adjusted EBITDA                             $           19,640         $           16,830         $           45,406         $           37,785
  Adjusted EBITDA margin                                  53          %              51          %              41          %              38          %
  (1) Restructuring charges include termination and retention benefits and the impairment of certain capitalized software projects in connection with our 2017 Seattle restructuring plan.
CommerceHub, Inc.
GAAP to Non-GAAP Reconciliations, continued
(in thousands except per share data)
(unaudited)
   Reconciliation of GAAP net income to adjusted net income:
                                                                        3 months ended:                                                           12 months ended:
                                                                        12/31/17                             12/31/16                             12/31/17                             12/31/16
   Net income                                                           $                3,166               $                5,952               $                9,858               $                9,096
   Share-based compensation                                                              1,643                                2,537                                8,629                                11,290
   Acquisition-related intangible amortization                                           -                                    438                                  -                                    1,750
   Restructuring charges (1)                                                             1,203                                -                                    2,279                                -
   Tax effect of adjustments (2)                                                         (1,794           )                   (240             )                   (5,218           )                   (4,557           )
   Tax effects of federal tax reform and other deferred tax charges (3)                  6,437                                -                                    6,437                                -
   Adjusted net income                                                  $                10,655              $                8,687               $                21,985              $                17,579
   Reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share:
                                                                        3 months ended:                                                           12 months ended:
                                                                        12/31/17                             12/31/16                             12/31/17                             12/31/16
   GAAP earnings per diluted share                                      $                0.07                $                0.13                $                0.22                $                0.21
   Share-based compensation                                                              0.04                                 0.06                                 0.19                                 0.25
   Acquisition-related intangible amortization                                           -                                    0.01                                 -                                    0.04
   Restructuring charges (1)                                                             0.03                                 -                                    0.05                                 -
   Tax effect of adjustments (2)                                                         (0.04            )                   (0.01            )                   (0.12            )                   (0.10            )
   Tax effects of federal tax reform (3)                                                 0.14                                 -                                    0.14                                 -
   Adjusted earnings per diluted share                                  $                0.23                $                0.20                $                0.49                $                0.40
   Diluted share count                                                                   45,864                               44,408                               45,230                               44,343
   (1) Restructuring charges include termination and retention benefits and the impairment of certain capitalized software projects in connection with our 2017 Seattle restructuring plan.
   (2) Adjusted earnings per diluted share assumes a tax rate of 40%.
   (3) Represents the effects from the change in federal effective tax rate from 35% to 21%, which resulted in a charge to deferred tax expense, as well as the effect of a deferred tax charge associated with a 162(m) adjustment recorded in the fourth quarter of 2017.
   Reconciliation of GAAP net cash provided by (used in) operating activities to free cash flow:
                                                                        3 months ended:                                                           12 months ended:
                                                                        12/31/17                             12/31/16                             12/31/17                             12/31/16
   Net cash provided by (used in) operating activities                  $                10,718              $                4,329               $                38,101              $                (48,122          )
   Purchases of property and equipment                                                   (156             )                   (482             )                   (1,315           )                   (4,995           )
   Additions to capitalized software                                                     (109             )                   (582             )                   (1,247           )                   (4,545           )
   Free cash flow (1)                                                   $                10,453              $                3,265               $                35,539              $                (57,662          )
   (1) Includes share-based compensation liability payments of:                          -                                    -                                    -                                    (86,684          )
CommerceHub, Inc.
Supplemental Revenue Information
(in thousands)
(unaudited)
  Historical presentation of revenue by type:
                                           3 months ended:                                       12 months ended:
                                           12/31/17          12/31/16          % Inc (Dec)       12/31/17           12/31/16       % Inc (Dec)
  Revenue by type:
  Usage revenue                            $    27,751       $    24,661            13     %     $    75,996        $  69,098          10     %
  Subscription revenue                          6,933             6,737             3      %          27,759           25,503          9      %
  Set-up and professional services revenue      2,047             1,483             38     %          7,366            5,951           24     %
  Total revenue                            $    36,731       $    32,881            12     %     $    111,121       $  100,552         11     %
  Revenue by type for previously reported periods under current presentation:
                                           3 months ended:
                                           9/30/17           6/30/17           3/31/17           12/31/16           9/30/16        6/30/16         3/31/16       12/31/15     9/30/15     6/30/15     3/31/15
  Revenue by type:
  Core drop-ship revenue:
  Order fee revenue                        $    12,276       $    12,901       $    12,038       $    19,569        $  10,900      $   11,227      $  10,399     $    17,070  $   9,414   $   9,683   $   9,102
  Subscription and other platform revenue       8,544             8,432             8,451             9,195            8,053           7,827          7,542           7,728       6,767       6,529       6,474
  Set-up and professional services revenue      1,713             1,622             1,725             1,387            1,431           1,491          1,383           1,238       1,106       1,055       894
  Total core drop-ship revenue                  22,533            22,955            22,214            30,151           20,384          20,545         19,324          26,036      17,287      17,267      16,470
  Demand channel revenue                        2,081             2,253             2,354             2,730            2,094           2,558          2,766           3,235       2,408       2,591       2,320
  Total                                    $    24,614       $    25,208       $    24,568       $    32,881        $  22,478      $   23,103      $  22,090     $    29,271  $   19,695  $   19,858  $   18,790
  Drop-ship order count growth                  15     %          17     %          18     %          16      %        16      %       15     %       14     %

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