CommerceHub Investor Presentation Winter 2017-2018 1
FORWARD-LOOKING INFORMATION This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including about future business strategies, future financial performance, cost savings, market conditions and potential, future growth of ecommerce, customer growth, sales channel expansion, international expansion, and other matters that are not historical facts. These statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, market acceptance and performance of our products and services, competitive issues, general market conditions, regulatory matters affecting our business and changes in law. These forward-looking statements speak only as of the date of this presentation, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any such statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. There can be no assurance that any expectation or belief expressed in a forward-looking statement will occur, and you should not place undue reliance on any forward-looking statements. Please refer to our public filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, for additional information about us and the risks and uncertainties we face that may affect the forward-looking statements made in this presentation. 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 EBITDA as net income or loss plus interest expense, income tax expense, depreciation of property and equipment, amortization of capitalized software costs and intangible assets, share-based compensation expense and restructuring charges, less interest income and income tax benefit. We define 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 presentation. 2
COMPANY OVERVIEW Scale, Profitability and Blue-Chip Customers CommerceHub is a cloud-based commerce network for retailers, marketplaces, brands and distributors. Proven ecommerce network since 1997 $13.4billion estimated GMV enabled in 2016 11,000+ customers retailers, marketplaces, brands, distributors 3
COMPETITIVE ENVIRONMENT FOR ONLINE RETAILERS Product Selection and Fulfillment Capability Drives Revenue Growth and Market Share Gains Retailers are Unable to Keep Pace with Amazon s Investment in Physical Inventory and Fulfillment Assets EVERYONE ELSE PRODUCT SELECTION: FULFILLMENT CAPACITY: 300 million+ Usually less than 1 million 100+ state-of-the-art fulfillment centers in US 1 3 fulfillment centers SUPPLY-CHAIN AGILITY: Optimized for ecommerce Optimized to fulfill physical stores ABILITY TO INVEST: Virtually unlimited capital available for investment Capital investment is highly constrained by investor expectations and balance sheets Source: CommerceHub Estimates, Wall Street Research 4
VIRTUAL INVENTORY ENABLES EXPANDED PRODUCT SELECTION Physical and Virtual Inventory Work Side-By-Side to Enable Expanded Product Selections for Retailers BUY Fulfilled by Physical inventory Virtual inventory Drop-shipping and marketplaces Enabled by retailer-owned warehouses Smaller assortment ( <100K SKUs) Committed balance sheet capital Carried online and in store ü ü Enabled by drop-shipping & marketplaces ü Expanded assortment (100K+SKUs) & long-tail (1M+ SKUs) No inventory on retailer s balance sheet and no additional warehouse investments ü Endlessly scalable through additional supplier connections Fulfilled by suppliers, brands, 3PLs and other fulfillment sources ü 5
VIRTUAL INVENTORY FOR GLOBAL ECOMMERCE CommerceHub: Demand, Supply & Delivery Platform & Distributed Commerce Network RETAILERS DEMAND SUPPLY DELIVERY RETAILERS DISTRIBUTORS NATIONAL CARRIERS BUY SEARCH 3PLS COURIERS MARKETPLACES STORES REGIONAL CARRIERS BRANDS New Sales Channels Expanded Product Assortments Rapid Delivery COMMERCEHUB 6
COMPETITION: RETAIL DIY PROGRAMS In-house Legacy Retail DIY EDI Programs are CommerceHub s Primary Competitors Retail DIY Program w/edi vs. CommerceHub Ongoing IT projects to add suppliers High cost delivery w/poor performance Services Supplier Onboarding Retailer/Supplier Matchmaking Ecommerce Growth PRE-BUILT TRADING PARTNER NETWORK No visibility or fulfillment control Point-to-point integration per supplier SaaS Platform Business Process Modeling Exception-Based Management Distributed Inventory Content Management Shipment Optimization STORES 3PLS Messaging Layer EDI Messaging Layer EDI, API, Web, XML SUPPLIERS & BRANDS Single integration to entire trading partner Rapid and scalable onboarding, testing & certification of suppliers Proactive identification & resolution of fulfillment problems ü ü ü ü network Optimized customer delivery 7
TRUSTED PARTNER To Top Retailers, Brands and Marketplace Sellers Channel partners include: 8
GROWTH DRIVERS ECOMMERCE GROWTH INCREASED ADOPTION FROM CURRENT CUSTOMERS NEW RETAIL AND BRAND CUSTOMERS Shift to ecommerce provides wave of underlying growth to recurring subscriptions and usage revenue Increased adoption of Virtual Inventory adds incremental growth Significant addressable market remains in US, with additional opportunity in UK and Europe 9
CONTINUED SECULAR GROWTH OF ECOMMERCE Ecommerce is the Primary Growth Channel in US Retail $800 $700 $600 +15% CAGR US Online Retail Sales (B) $523 $599 $684 $780 50.0% 45.0% 40.0% 35.0% $500 $400 $300 $200 $100 $170 $200 $229 $260 $298 $342 $394 $453 4.5% 4.9% 5.3% 5.8% 6.4% 7.3% 8.2% 8.9% 10.0% 11.1% 12.4% 13.7% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% $- 2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e 2021e Online Retail (billions) Online as % of Total Retail US online retail sales are projected to grow from 4.5% of total retail sales in 2010 to an estimated 12.6% in 2020. 0.0% 2010 2016: US Department of Commerce. 2017-2021 estimates: emarketer, Inc. 10
INCREASED ADOPTION DRIVES REVENUE GROWTH Customer Segment: Ecommerce GMV enabled by: Opportunity: Virtual Inventory by CommerceHub Physical inventory or other 3P fulfillment Low Penetration Retailers < 10% penetration Strategically engage with highest potential retailers to lay groundwork for increased adoption. Retailers Ramping Adoption 10% to 30% penetration Fuel further adoption through identifying specific pain-points to upsell content management and other enabling software. Highly Penetrated Retailers 30% to 50% penetration Target penetration Deepen competitive moat, upsell shipping & logistics solutions to increase revenue per order. 11
SIGNIFICANT AND GROWING TOTAL ADDRESSABLE MARKET Est. $2B Revenue Opportunity in North America B2C Ecommerce New North American Retailers and Brands North American Revenue Opportunity 1 $2 B $1 B Current Customers UK & Europe Revenue Opportunity 2017 2020 1) CommerceHub estimate. 12
2016 FINANCIAL HIGHLIGHTS Total Revenue Revenue Growth Gross Margin $100.6M 15% 77% Total revenue 18% Core drop-ship revenue 1 Sales & Marketing Expense 11% of revenue Profitability 9% net income margin 38% adj. EBITDA margin 2 Cash Flow $(48M) net cash used in operations $29M free cash flow ex. SBC 2 1) Excludes revenue from our demand channel solutions. 2) See Statement Regarding Non-GAAP Financial Measures. A reconciliation of these adjusted, non-gaap, financial measures to the closest comparable GAAP financial measures has been provided in the financial tables included at the end of this presentation. 13
THIRD QUARTER 2017 FINANCIAL HIGHLIGHTS Total Revenue Revenue Growth Gross Margin $24.6M 10% 80% Total revenue 12% Core drop-ship revenue 1 Sales & Marketing Expense 10% of revenue Profitability 8% net income margin 34% adj. EBITDA margin 2 Cash Flow $6.7M net cash provided by operations $6.3M free cash flow 2 1) Excludes revenue from our demand channel solutions. 2) See Statement Regarding Non-GAAP Financial Measures. A reconciliation of these adjusted, non-gaap, financial measures to the closest comparable GAAP financial measures has been provided in the financial tables included at the end of this presentation. 14
HIGHLIGHTS Secular drivers fueling significant TAM Mission critical cloud-based platform for Retailers and Brands $391B US 1 / $1.9T 2 global ecommerce GMV (2016) $780B 3 US / $4.5T 4 global ecommerce GMV (2021) Distributed commerce network connecting thousands of retailers, brands and distributors Powerful network effect Scalable platform with critical mass of retailers and suppliers Attractive business model and proven financial results Combination of consistent revenue growth, profitability and cash flow Blue-chip customer base Large customer base of large online retailers, brands and distributors Experienced management team Founder-led team of seasoned software and ecommerce professionals 1) US Department of Commerce. 2) Global ecommerce estimate: emarketer, Inc. 3) US ecommerce estimate: emarketer, Inc. 4) Global ecommerce estimate: emarketer, Inc. 15
RECONCILIATIONS Reconciliation of GAAP net income to adjusted EBITDA: 3 months ended: 9 months ended: 9/30/17 9/30/16 9/30/17 9/30/16 Net income $ 1,988 $ 710 $ 6,692 $ 3,144 Interest expense (income), net 148 361 604 132 Income tax expense (benefit) 1,182 (438) 4,130 1,611 Depreciation and amortization 2,002 2,453 6,278 7,315 Share-based compensation 2,009 2,193 6,986 8,753 Restructuring charges (1) 1,076-1,076 - Adjusted EBITDA $ 8,405 $ 5,279 $ 25,766 $ 20,955 (1) Restructuring charges include termination and retention benefits and the impairment of certain capitalized software projects in connection with our 2017 Seattle restructuring plan. Reconciliation of GAAP net cash provided by (used in) operating activities to free cash flow: 3 months ended: 9 months ended: 9/30/17 9/30/16 9/30/17 9/30/16 Net cash provided by (used in) operating activities $ 6,702 $ 12,814 $ 27,383 $ (52,451) Purchases of property and equipment (210) (377) (1,159) (4,513) Additions to capitalized software (154) (459) (1,138) (3,963) Free cash flow (1) $ 6,338 $ 11,978 $ 25,086 $ (60,927) (1) Includes share-based compensation liability payments of: - (754) - (86,684) 16
THANK YOU CommerceHub Investor Presentation Winter 2017-2018 17