SPS Commerce Inc
NASDAQ:SPSC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
161.7
215.42
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
SPS Commerce Inc
You don't have any saved screeners yet
Good day ladies and gentlemen and welcome to the SPS Commerce Q1 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference may be recorded.
I would now like to introduce your host for today's conference, Ms. Irmina Blaszczyk. Ma'am, you may begin.
Thank you Daniel. Good afternoon everyone and thank you for joining us on SPS Commerce first quarter 2018 conference call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy and efforts designed to increase our traction and penetration with retailers and other customers.
These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note, these forward-looking statements reflect our opinions only as of the date of this call and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Please refer to our SEC filings as well as our financial results press release for a more detailed description of the risk factors that may affect our results. These documents are available at our website, spscommerce.com and at the SEC's website, sec.gov. In addition, we are providing a historical data sheet for easy reference on our Investor Relations section of our website, spscommerce.com.
During our call today, we will discuss adjusted EBITDA financial measures and non-GAAP earnings per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP and adjusted EBITDA measures, including reconciliations of these measures with GAAP comparable measures.
And with that, I will turn the call over to Archie.
Thanks Irmina and welcome everyone. We posted strong performance in the first quarter of 2018 as SPS Commerce continues to be a key strategic partner to a large network of retailers and suppliers. For the first quarter, revenue grew 14% to $59.1 million, recurring revenue grew 14% and adjusted EBITDA grew 28% to $10.9 million. Retailers are continually evolving their omnichaneel strategies to adapt and anticipate the shopping habits and expectations of today's consumers, which have largely been influenced by retail giants like Amazon and Walmart.
In an annual survey from Retail Systems Research, hundreds of retailers, suppliers, distributors and logistics firms weigh in on the biggest factors impacting consumer's buying decisions. For five years in a row, one theme endures year-over-year. Consumers are setting expectations in retailing and delivering on those high expectations requires accurate, efficient, streamlined and automated trading partner relationships. We anticipate that this trend will continue and accelerate in the coming years, which underscores our belief in the multibillion dollar TAM ahead of us and the tremendous opportunity it presents for SPS Commerce and our leading platform which enables retailing across all channels.
SPS Commerce has managed community enabling campaigns for some of the world's largest and leading retailers. Costco, for example, has been working with SPS Commerce for 15 years, while expanding its retailing platform and onboarding thousands of vendors over the course of our partnership. Over the years, Costco has partnered with SPS for vendor onboarding achieving nearly 100% automation. As a strategic partner of choice, SPS Commerce onboards new vendors to the Costco platform on a monthly basis which in turn continually fuels the growth of our retail network.
As retailers invest in new technologies to improve supply chain execution, they turn to SPS Commerce to optimize their investments. We have recently engaged with WESCO: a leading global supply chain solutions provider and distributor to help them create a world-class customer experience by transitioning to a new electronic order fulfillment system. In a matter of months, SPS Commerce launched a community enablement program and onboarded a significant number of their vendors.
Costco and WESCO only two examples of exceptional companies who recognize the benefits of supply chain efficiencies. But there are many more who are in the process of making investments to optimize supplier integration and to offer the omnichannel retail experience that customers have come to expect.
Reports from the 2018 Shoptalk Retail & Ecommerce Conference which took place in March of this point to lagging e-commerce infrastructure, aging inventory and order management systems and the need for integration between retailers and suppliers to achieve some of the most basic yet imperative omnichannel abilities such as dropship. These trends validate the need for agile supply chain solutions to deploy an efficient omnichannel strategy and highlight the vast number of retailers out there who are at different stages in adapting to e-commerce.
Increasing collaboration among trading partners is a complex progression and we believe that SPS Commerce with the retail industry's largest network and a comprehensive portfolio of e-commerce solutions is well-positioned to connect retailers and suppliers on industry's most broadly adopted retail cloud services platform.
With that, I will turn it over to Kim to discuss our financial results.
Thanks Archie. We had a great first quarter of 2018. Revenue was $59.1 million, a 14% increase over Q1 of last year and represented our 69th consecutive quarter of revenue growth. Recurring revenue this quarter grew 14% year-over-year. The total number of recurring revenue customers increased 4% year-over-year to approximately 25,900. For Q1, wallet share increased 10% year-over-year to approximately $8,500.
For the quarter, adjusted EBITDA was $10.9 million compared to $8.5 million in Q1 of last year. We ended the quarter with total cash and marketable securities of approximately $168 million. We also repurchased $5.9 million of SPS shares in the quarter.
Now turning to guidance. For the second quarter of 2018, we expect revenue to be in the range of $59.4 million to $60 million. We expect adjusted EBITDA to be in the range of $10.2 million to $10.7 million. We expect fully diluted earnings per share to be approximately $0.14 to $0.16 with fully diluted weighted average shares outstanding of approximately 17.5 million shares. We expect non-GAAP diluted earnings per share to be approximately $0.32 to $0.34, with stock based compensation expense of approximately $3.3 million, depreciation expense of approximately $2.4 million and amortization expense of approximately $1.1 million.
For the full year, we expect revenue to be in the range of $242 million to $244 million, representing 10% to 11% growth over 2017. We expect adjusted EBITDA to be in the range of $43.5 million to $45 million, representing 27% to 32% growth over 2017. We expect fully diluted earnings per share to be in the range of $0.70 to $0.74. We expect fully diluted weighted average shares outstanding of approximately 17.5 million shares. And we expect non-GAAP diluted earnings per share to be the range of $1.42 to $1.45 with stock based compensation expense of approximately $12.7 million, depreciation expense of approximately $9.9 million and amortization expense for the year to approximately $4.5 million. For the remainder of the year, on a quarterly basis, investors should model a 30% effective tax rate calculated on GAAP pretax net earnings.
As a reminder, on our fourth quarter earnings conference call, we introduced the 2020 goal and an updated long-term target model. Specific to the 2020 goal, factoring in current industry dynamics, we expect to reach adjusted EBITDA of at least $65 million and adjusted EBITDA margin percent at least in the low-20s. We expect a revenue run rate comfortably in excess of $300 million exiting 2020. Beyond 2020, we expect to see continued margin expansion with a long-term target model for adjusted EBITDA margin of 35%. Given the progress we have maybe towards our adjusted EBITDA targets in the first quarter of the year, we are well on our way to achieving our 2020 goal and feel confident in our ability to grow our margin profile in the long-term.
With that, I would like to open the call to questions.
[Operator Instructions]. Our first question comes from Tom Roderick with Stifel. Your line is now open.
Hi guys. Thanks for the chance to ask a question here. So Archie, my first one is for you, just thinking about this mix of growth and margin expansion. You guys certainly committed to stronger margin expansion than we have seen for growth, but growth is outperforming. Wondering, I know it's only one quarter later, but if you have a chance to update us any thoughts as you talk to your big retail partners getting into the year, how they are thinking about some of their transformational projects? And is there any break in the logjam associated with moving their plans forward on that front? Or is it the same environment as you have seen? So I will start with that one, then I have got a follow-up.
Yes. Tom, it continues to be a retailer by retailer question. And I would say, when you add up all the retailer by retailer status, I would say it's greatly unchanged from the past. Obviously there is some that are moving forward, some that are struggling, some that are in the process of transforming. So it continues to be, I would say, consistent with what we have seen over the last four-plus quarters.
Fair enough. Okay. And then Archie, you guys added a few Board members this quarter and some perhaps reflecting some shareholder interests or concerns out there perhaps. But maybe you can sort of talk about what your conversations with its shareholders have sort of brought in terms of any changes in the way you think about the company, whether it's a stronger commitment to margin expansion? You guys are talking about 35% longer term now. Just sort of curious, but any thoughts you might have on long-term picture as it relates to what shareholders are suggesting to you?
No. I think, Tom, thank you. We laid out in the December Board meeting our strategy for 2018 which we think is a good strong strategy and to the extent we are executing on it, what we tend to do as a business, is as we have a strategy at the beginning of the year, as long as we are executing on it, we tend to stay the course on the strategy. So obviously, we are out talking to shareholders, but we think we have a strategy set out that we set our in December and we plan on continuing to execute towards that plan.
Okay. Good. Kim, last quick one for you. As you think about commitment to the EBITDA expansion here, particularly this year, you guys have undoubtedly had to free up some resources from some places to drive a little bit of added leverage in the model. But curious if you could just update us on sales headcount numbers? How you are thinking about backfilling sales to the extent that you need to at all and to the extent that you are redeploying resources? Where do those come from, the gains in the added leverage in the model? Thanks guys.
Sure. So as we mentioned on the last conference call, we were actually in a great position exiting 2017 that we felt like we have the appropriate sales resource and capacity for us to deliver on our expectations for 2018. So that puts us in a different spot than we had been historically. No change relative to our opinion that we have the appropriate sales capacity to hit our expectations in 2018.
Perfect. Thank you guys.
Thank you. And our next question comes from Matt Pfau with William Blair. Your line is now open.
Hi guys. Thanks for taking my questions. First I wanted to hit on the quarter and the nice performance there. Kim, any reason why the outperformance in the first quarter wouldn't flow through to the rest of the year? And then I guess as we look at the growth rate throughout the year, the guidance sort of implies a deceleration in topline growth. So any reason why that would be?
Sure. So as it relates to the quarter, our outperformance was primarily driven by really the community enablement campaigns, the quantity as well as the timing associated with that. That translated to outperformance on both recurring revenue as well as one-time revenue. When we think about the full year, what we have done is we have increased the midpoint of our annual expectations by $0.5 million, which takes into account our results for Q1, but it also take into account the fact that there is still a lot of uncertainty in the retail space and the retail environment and both of those were reflected into our full-year expectations for revenue.
Got it. That makes sense. And then I wanted to follow-up with sort of along those lines, there are a few retailers out there that are either liquidating or going to liquidate or in the process of liquidating. And if I recall back when Sports Authority liquidated, it had about 1% negative headwind to your revenue growth. So are you exposed potentially to any of the retailers that are thinking about or in the process of liquidating? And if so, has that been accounted for in the current guidance?
Sure. So I would say, in the retail space, there is always some consolidations or bankruptcies that are occurring. For the most part, we tend to have a pretty minimal impact to that. What you are referring to, that occurred back into the latter part of 2016, impacting us in 2017 by about 1%. It was based on about a handful of retailers. So in general, there are bankruptcies and consolidations that occur but they tend to have somewhat limited impact in our overall results. Our guidance reflects our expectations as we are thinking about the retail environment and retail in transition in 2018.
Got it. Thanks for taking my question. And nice quarter, guys.
Thank you. And our next question comes from Monika Garg with KeyBanc. Your line is now open.
Hi. Thanks for taking my question. Just to follow up with the last question, I mean you are guiding Q2 revenue almost flattish Q-over-Q. Generally, historically if we looked, Q2 is up like 4%-ish to 5% Q-over-Q. Any particular reasons for that?
Sure. I would probably go back to the previous comment I made, which is specific in the quarter. A part of our outperformance had to do with timing, some of big community enablement campaigns. So that's been taken into account, as it relates to the Q2 guidance as well as the full year guidance. And also there is certainly again the retail space still has a lot of transition that it's going through and both have been taken into account in both the Q2 as well as full year guidance.
All right. Thanks. And how big is the analytics business right now as a percentage of revenue? And what is your growth expectation from that this year?
Sure. So as a business, we talk about total revenue and we talk about our recurring revenue. We did give a data point last year on an annual basis that we thought was helpful for investors last quarter for the full year and that information, just to remind for 2017, analytics was about 17% of total recurring revenue and was growing about 4%. But that's a metric that we haven't provided on a quarterly basis.
So the expectation this year is a similar 4% to 5%, 6% growth in the analytics business?
We have not provided expectations by product. We have provided expectations for total company revenue. We did however, on the last earnings call mentioned that there is about 1% of revenue from customer consolidation that we are impacted by and that customer was an analytics customer.
Got it. Thanks for the color. The last one here, you had previously talked about the customer churn up about 12%, revenue churn up 6%. Given that what we are seeing in the retail markets, are these churn rates still the same? Have you seen any changes in it? Thank you so much.
Sure. So what we had talked about, the numbers are similar and consistent with last quarter, which was about 13% annual customer churn and about 7% dollar churn.
Thanks again.
Thank you. And our next question comes from David Hynes with Canaccord. Your line is now open.
Hi. Thanks guys. So wallet share growth continues to hold up really nicely. So maybe just some color there. Obviously analytics plays a role in that, but just within the supplier base, are you seeing better continued growth within the base? Is it landing larger suppliers? If it's the latter, maybe you could talk about what you are seeing with channel partners? Any color there would be helpful.
Sure. So that revenue per recurring revenue customer continues to benefit from size of customer. So larger customers impact that as well as more and more revenue from our existing customers. One thing that was interesting in this quarter as it related to the mix of community enablement campaigns that we had, we actually had a larger percentage of that mix of community enablement campaigns end up impacting us with existing customers versus newer customers. And so that also has a positive impact on that revenue per customer.
Okay. Got it. And then Archie, as I think about interim targets, I think margin expansion is obviously going to be the key metric that the investors will be watching. And historically, one of the barriers to margin expansion has been M&A. So curious kind of how do you think about balancing M&A with abilities to deliver against these interim targets? Obviously, if you see an interesting opportunity, you have to take advantage of that, but help me think about that risk versus commitment to these interim targets and how you balance that?
Yes. I mean we have a commitment to these interim targets which we feel very confident of and as we look at M&A, we are obviously going to have a same lens. I think what you would see us is keep in mind of these commitments and probably be more aggressive on any costs in any acquisition to make sure that it does not move us in the wrong direction.
Okay. Perfect. Okay guys. Thanks. Good quarter.
Thank you. And our next question comes from Koji Ikeda with Oppenheimer. Your line is now open.
Congrats on a nice start to the year and thank you for taking my questions. First question on the recurring customer net adds in the quarter, I calculated and I think my math is right here, about 140 or so that you added in the quarter, but it sounds like the commentary that you have given so far is that it was a pretty big quarter on the community enablement program. So is that net add just timing related? Any color on the puts and takes there would be helpful.
Sure Koji. So you are right. In general, the quantity of community enablement campaigns is more correlated as it relates to the quantity of customer adds. What was interesting in this quarter is the mix of the community enablement campaigns that occur in the quarter, more of that ended up translating into an upsell of an existing customer versus a quantity of new customer. So it's just a slightly different dynamic that we saw in this quarter compared to last quarter as an example.
Great. Thanks for the color on that, Kim. And then just a quick question here on ARPU. I know the three levers that you guys really talk about are the more connections and the size of the customer and even multi-products. But I wanted to ask a question on pricing and I believe pricing was definitely not a focus lever for growth over the past year. But I guess what's the best way to think about the product pricing strategy going forward? I mean is that pricing strategy still the same? Are there can be any changes? Any color would help there too. Thanks.
Yes. I wouldn't expect a major change. Obviously, we continue to be out landing new customers. And from that standpoint, there's always the spot pricing pressures and I think you should expect more of the same.
Okay. Great. Thanks for the color and congrats again to the nice start to the year.
Thank you. And our next question comes from Jeff Van Rhee with Craig-Hallum. Your line is now open.
Great. Thanks. A couple from me. Kim, you touched on the timing of the enablement campaigns. Can you just expand on that? I think that was a similar comment that you had last quarter and then you referenced it again this quarter. When you see timing, are you just referring to the cycle to kicking off that campaign was shorter or the schedule that they wanted you to get their suppliers onboard was shorter? Just maybe a little clarification?
Sure. So you are correct. A similar commentary we provided the last two quarters and in Q4 you saw that reflected in actually a higher customer net adds than we typically see in Q4. In this quarter, you saw it reflect a little bit more in that revenue per customer. But in either case, what drives the timing of the campaigns, when we are at the beginning of a quarter and we are forecasting what the expectations are for that quarter, we certainly know where we have engaged in conversations with the retailers and we have a pretty good view of what do we think that will translate to specific in that quarter. And some times however, that timing may be slightly different between quarters. So when you engage in a conversation with a retailer to when you have completed the webcast and you have completed the rolling out of the community enablement campaigns, some of those may happen at a faster time period than originally anticipated. And so that's what we saw in Q1. So you can think of it as some that we had initially anticipated in Q2 just happen to occur earlier and therefore the results you are seeing it in Q1.
And is that timing more a function of your delivery of the services? You are just being quicker in turning around that demand? Or would you say it's more that pull forward, if you will, is being more driven by that retailer saying, yes, let's do it, let's move this up, let's get this training done, let's go?
It's the latter, really. On the timing of community enablement campaigns, they are really solely driven by the timing and the pace that the retailer wants.
Yes. Okay. That's great. Okay. And then, let's see, the enablement campaigns themselves, as you start reaching out to the suppliers, have you seen any meaningful impact or I should say a change with respect to what percent of those suppliers you were testing versus the percent of those suppliers that sign-on as full-blown customers?
No. I would say, it's relatively consistent. Obviously, Jeff, it bounces from program to program and depending on the type of customers that they have and whatnot, but it's relatively consistent over the years.
Got it. Okay. Great. Thank you.
Thank you. And our next question comes from Pat Walravens with JMP Securities. Your line is now open.
Hi. This is Matt Spencer, on for Pat. Thank you for taking my question. How many big retail bankruptcies can your guidance absorb for 2018?
When we put together our expectations for the year, we take into account a lot of factors. We look at what we have seen historically. We also look at what our expectations are for the year. And all of that ends up into what is reflected in our guidance. So it's hard for me to answer a particular number in there because there is multiple factors that go in but we feel comfortable with our ability to deliver on our expectations for revenue for the year in light of the environment of retailers in transition.
Got it. And then have the announced acquisition of CommerceHub impacted business at all? And could you remind us how you compete with them? Thanks.
Yes. I would say, there is zero impact. Obviously their business as normal. At least I haven't seen any change in their behaviors as a business. They are specific to dropship. We compete with them on a retailer by retailer basis for the dropship component of an e-commerce provider and that continues to be the same. We kind of got asked the same question when they went public and the flip. They went public and now they are going private and the financial capital structure of your competition doesn't have a major impact. It's more what will have an impact is, what access to capital they have, what people they retain, everything else will have the biggest impact. Usually that doesn't happen over the first quarter or two. We will take a wait-and-see attitude at that.
Great. Thank you very much.
Thank you. And our next question comes from Mark Schappel with Benchmark. Your line is now open.
Hi. Thank you for taking my question. With respect to the retail macro environment, Kim, I think you touched a little bit on this in a prior question. But anyways, Archie, if you could just address any changes you are seeing or even not seeing with respect to a retail buying behavior?
Yes. From our standpoint and our product side, it's relatively consistent over the last four, five, six quarters. Again, it's somewhat on a retailer by retailer basis. So you have got to be a little careful by generalization. But we are seeing a lot of investment in technology. Sometimes that is good for us in the timing. Sometimes it's not good. We sit behind different initiatives, but more or less pretty consistent from our standpoint over the last four to six quarters.
Okay. Thank you. And then as a follow-up, Archie, in prior quarters, you have talked about the increasing importance of your channel partners in your business. I think it was about 22% of new business last year. Anyways, just wondering if you could just discuss some of the initiatives that you have this year as you try to build and grow your channel ecosystem?
Yes. Our channel strategy has always been about making it easier and easier for us to do business with partners or partners to do business with us. So that's always been on both the people, process and technology side of the equation. And then, both add new partners, both large and small and then deepen the relationship. And I would say, probably the biggest change over the last few years is going after more of the bigger global partners.
Thank you.
Operator
Thank you. [Operator Instructions]. Our next question comes from Scott Berg with Needham & Company. Your line is now open.
Great. Thanks guys. This is Peter Levine, in for Scott. And again congrats on a good quarter. To piggyback off of the prior question. I think last quarter you talked about little bit of a tailwind from dropship. And I was curious to know, I know you highlighted community enablement but did you see any of that kind of flow through the first quarter? Maybe give us your expectations for the year for the dropship product? And then, Archie, curious to hear your take on the market for this technology or penetration rate among retailers because our checks continually highlight most retailers, suppliers are still struggling to get this whole dropship technology position right.
Well, the dropship is complicated for retailers. And it takes a lot of coordination between a retailer and their supply chain and their trading partners. We continue to see it as a driver, a change management agent for retailers. Again to remind everybody last studies, e-commerce is about 11% of total retail. And in general, I would say that dropship tends to be between 10% to 20% of that 11%. So it's still a very small part of retail, but it's growing, I think, rapidly and it's a driver of change which is, we believe, a tailwind.
Great. Then most of my questions are answered here. So I guess if I could ask a question on sales force productivity or at least efficiency. It's been over a year since you have restructured your sales org, new strategies that you put into place. If you look at where we are today, the changes you made, are they meeting or exceeding expectations? And then, if you could share where do you see the greatest gains in rep productivity? Is that coming from targeting more the senior level reps, improvements in rep tenure or you increasing quotas? Just to get an idea of what to expect for the year in terms of the leverage here in sales and marketing?
Yes. Looking back, I think our sales leadership has done a nice job really setting us up for the long term. Obviously they are into an environment that's somewhat challenging on the retail side, but I feel good there and I think we are focusing on, continue to focus on just a lot of the basics of talking to the retailers, talking about the supply chain efficiencies and making sure our message is as crisp as we can and that our reps are well-trained.
Great. Thank you again.
Thank you. And I am not showing any further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.