Q1 2022 SPS Commerce Inc Earnings Call
Yeah.
Hello, Thank you for standing by and welcome to SPS Commerce first quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that todays call.
<unk> may be recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today or last year.
Investor Relations Sps Commerce. Please go ahead.
Thank you Josh good afternoon, everyone and thank you for joining us on Sps Commerce first quarter 2022 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, specifically, our Form 10-K as well as our financial.
Results press release framework detailed description of the risk factors that may affect our results.
These documents are available at our website Sps commerce dot com and not 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 Sps Commerce Dot Com <unk>.
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 financial measures, including reconciliations of these measures with comparable GAAP measures.
And with that I will turn the call over to Archie.
Thanks for Mena and welcome everyone.
Before I start with our Q1 business overview I want to recognize that our thoughts are with the people in Ukraine.
As we continue to monitor the ongoing crisis, our priority as are our employees and their safety.
We're doing what we can to support our team of Keefe and their families.
Other Sps teams remain focused on business continuity and delivering to our customers.
Turning to first quarter 2022 results, our strong performance points to an ongoing evolution and retail.
Omnichannel dynamics are creating growth opportunities for suppliers driving the need for efficiency and continuity across the supply chain.
Since 2020, we observed how the pandemic impacted the retail industry and consumer shopping habits, which in turn compelled trading partners to evaluate their infrastructure and supply chain processes.
These dynamics emphasize the need for automation agility and demand planning.
All of which accelerated <unk> adoption.
Over the last year, we've seen a significant increase in volume of electronic purchase orders advanced ship notices and electronic invoices.
In the first quarter of 2022, we continued to see strong momentum in fulfillment, which grew 19% year over year.
Analytics had another strong quarter and grew 11%.
Total revenue grew 17% to $105 $2 million and recurring revenue grew 18%.
Adjusted EBITDA grew 25% to $31.8 million.
Automation is essential to achieve agility and efficiency in a dynamic omnichannel environment.
The capability to scale depends on our suppliers' capacity to fulfill as many orders as possible without being hampered by retailers technical requirements.
Brands like hydrate spark partnered with Sps commerce to automate fulfillment and expand their business across online sites marketplaces and retail stores.
Automation provided a hydro its park, the agility that leverage omnichannel and grow their business nationwide.
To reduce the risk of delays along the supply chain demand planning is critical.
Predicting the level of stock to satisfy customer needs at any given time results in higher sales and increased profitability.
Big data analytics, not only has the potential improved operating margins of companies by 60%, but also revolutionize all areas of retail.
For example, as a result of collaboration between Pantene, the weather channel and Walgreens Pantene saw sales increase over 10% in Walgreens stores through its data driven Aircastle project.
Amazon is so successful in using big data marketing and sales tactics that 35% of its sales are generated from its customer recommendations algorithm.
Walmart is developing the world's light largest private cloud with algorithms built to track data on inventory transactions and competitor activity.
This allows them to respond to market changes almost instantly.
At Sps are retail analytics software is the key to inefficient demand planning and gives decision makers to overview of trends and patterns need to make macro scale decisions and react to micro scale 10 trends and unexpected challenges.
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Please remain on the line your conference will resume shortly.
Good afternoon, everyone.
We somehow got disconnected not sure what happened on the technology front. So a thorough body a pioneer in the wellness technology space has been an Sps fulfillment customer since 2019, the experienced high growth in recent years and became an analytics customer leveraging global point of sale data their body is able to optimize inventory manager.
To increase sales and continue to add more retailers to the network in North America, Europe and Australia.
In summary, Sps continues to be a valuable player partner to retailers and suppliers as they navigate ongoing challenges and seize opportunities to evolve their omnichannel strategies.
Our comprehensive suite of solutions include all the elements that trading partners need to communicate inventory order delivery and status information.
One connection to Sps Commerce provides instant access to the largest network of up to date mapped PDI connections and more than 105000 players in the retail space.
With that I'll turn it over to Kim to discuss our financial results. Thanks, Archie we had a great first quarter of 2022 revenue was $105 $2 million, a 17% increase over Q1 of last year and represented our 80 <unk> fifth consecutive quarter of revenue growth.
Revenue this quarter grew 18% year over year.
The total number of recurring revenue customers increased 12% year over year to approximately 37900 and wallet share increased 5% to 10350.
For the quarter, adjusted EBITDA grew 25% to $31 $8 million compared to $25 $5 million in Q1 of last year.
We ended the quarter with total cash and investments of approximately $243 million and repurchased approximately $15 million of Sps shares.
Now turning to guidance.
For the second quarter of 2022, we expect revenue to be in the range of $108 3 million to $109 $3 million.
We expect adjusted EBITDA to be in the range of $30 million to $35 million, we expect fully diluted earnings per share to be in the range of 25 to 26.
With fully diluted weighted average shares outstanding of approximately 37 3 million shares.
We expect non-GAAP diluted earnings per share to be in the range of 48 to 49.
Mr based compensation expense of approximately $9 $4 million depreciation expense of approximately $4 $2 million in amortization expense of approximately $2 $5 million for the full year, we expect revenue to be the range of $443 4 million to $445 $9 million representing approximately 15.
To 16% growth over 2021, we expect adjusted EBITDA to be in the range of $126 7 million to $128 million, representing 18% to 20% growth over 2021.
We expect fully diluted earnings per share to be in the range of $1 22 to $1 24 with fully diluted weighted average shares outstanding of approximately 37 3 million shares we expect non-GAAP diluted earnings per share to be in the range of $2.07 to $2.09 with stock based compensation expense of approximately $34 $9 million.
<unk> expense of approximately $18 million in amortization expense for the year of approximately $10 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.
Beyond 2022, we maintain our annual revenue growth expectations of 15% or greater and we continue to expect adjusted EBITDA dollar growth of 15% to 25% as we invest in the business to capitalize on market dynamics and support current and future growth.
In the long term, we maintain our target model for adjusted EBITDA margin of 35%.
In summary, ongoing evolution in retail and the need for supply chain efficiency is fueling the need for automation driving <unk> adoption and underscoring the growing market opportunity in front of us with.
With that I'd like to open the call to questions.
Sure.
Sure.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question Crystal balance sheet.
Our first question comes from Matt Pfau with William Blair. You May proceed with your question.
Hey, guys. Thanks for taking my questions.
Want to ask.
You know inflation, increasing herein and impacting some of the retailers and suppliers that you guys do business with does that have any impact on demand for your product as companies look to you, perhaps optimize our operations and reduce costs.
Technically Matt it would have a slight positive, but we havent seen anything.
On that front.
Inflation Theres, obviously, a lot of discussion about how do we pass on cost.
The one positive is that it does make people try to make other parts of their operation more efficient, which should be a slight positive, but any correlation that we're seeing it would be very very challenging for me to.
What I just said that it's had any impact.
Got it.
And just last one for me on the data Masons acquisition.
The part of the thesis behind that was with dynamics 365 replacement cycle or are you guys seeing.
That play out as you expected.
Yes, we've seen that play out extremely well and Microsoft continues to execute along that and then obviously new customers and new logos moving moving to Microsoft.
Yes.
We're now in a position where we not only have.
Foreign away, the largest network, which sorry, it's been our biggest competitive advantage, but now we clearly have the best integration solution as well in the Microsoft So we're seeing incredible momentum in the Microsoft space.
Okay.
Great guys. Thanks, a lot appreciate it.
Yes.
Thank you. Our next question comes from Parker Lane with Stifel. You May proceed with your question.
Yeah, Hi, Thanksgiving Archie has it gone.
Wanted to talk about wallet share for a second if you look at the last couple of years, it's bounced around a little bit obviously, you've made a few acquisitions here, it's been a pretty dynamic environment for your customers to operate and came in the context of your 15% plus growth outlook. How should we think about the wallet share component is this 5% sort of mid single digits.
The right level going forward or will continue to bounce around quarter to quarter.
Sure and great to hear from you Parker in general when we look at that 15% or greater of revenue. Our top line growth you should expect ongoing a nice healthy contribution from both customer adds as well as wallet share.
One one thing to keep in mind when you look at that 5% growth this quarter and do keep in mind that we acquired a company called genius Central Q4 sort of mid Q4 last year and that company that we acquired we.
We added a lot of customers from that acquisition approximately 1800 customers. However, their average revenue per recurring revenue customer was much lower than ours. There is think of it as sort of sub 2000 and ours as you know call. It 10000. So when you just take that contribution that nothing else that.
Has an impact to reduce or a negative impact to our overall wallet share by $350.
So it's still an increased 5% year over year, but were it not for that acquisition you would have actually seen that wallet share higher single digits, yes, very very helpful makes a lot of sense and then Archie.
Your comments on the analytics business.
The demand.
Demand planning components that your customers are dealing with here do you have more visibility you'd say into analytics growth for the remainder of year than you did 90 days ago, how is that pipeline looking today for analytics.
The pipeline continues to strengthen and I mean, we feel optimistic about it we've always felt optimistic but it feels like it's.
A couple of quarters ago, we started to have the gross up and the question was is it sustainable I believe the current levels are sustainable.
It's around two points or two so I consider that the same.
The same but we view it as it were now in a new era.
The analytics product and feel very good about that.
Got it understood. Thanks again.
Thank you. Our next question comes from Scott Berg with Needham You May proceed with your question.
They are changing curry graphs on the good quarter. Thanks for taking my questions.
Would you say to Archie I wanted to unpack your comments a little bit on significant growth in the Adi how should we think about.
The debt that growth usage of your platform, if we break it down a little bit as it maybe.
Selling into larger customers that just are having more volumes, that's kind of contributing to that growth is it something around maybe drop shipments I didnt know if theres anything under the under the covers there that might be helpful to us you OPEC.
Yeah. Thanks, Scott there I think there's a lot of different components to it we.
We do consider continue to see nice momentum in the larger customers, especially with our acquisitions around adapters and glass mile integration, which has helped us along all the past. So we continue to see see that and we're one of the reasons for that is we are seeing upgrade and org changes.
Our platforms to that segment, which bodes well for us I think on the smaller mid size, we do continue to see momentum there as well.
The drop ship, obviously, a component allows supply retailers to expand their network of suppliers. So.
When you think about the total addressable market for us. It really is all about the total trading partner relationships that exist and we have seen continued nice movement from that standpoint, So I think it's Scott it'll all along all.
All elements of it and then obviously then with analytics kicking in so we feel pretty good about all segments of the business right now.
Got it and then from a follow up perspective, one of the things that ive been tracking over the last probably six to eight quarters is the ERP replacement cycle kind of broadly out there. So this is kind of human out on matts question, a couple of minutes ago, but what are you seeing more broadly across your channel partners within those different ERP segments.
Seems to be that that that demand environment is getting a little bit stronger maybe it's pent up demands.
<unk> that didn't get done in the early stages of the pandemic, that's falling out but are you seeing that benefit the business or is there any expectations of maybe elevated deal flow there that could help you in the short term.
We're seeing a more constant and it's the one thing that I was actually surprised at the beginning of the pandemic how strong it did state I mean, I anticipate 2020 to have significantly less contribution from channel and that actually didn't happen. So we just continue to see strong. The one thing that we do continue to see in each.
It's a little bit different.
Is that continued migration to the cloud.
And the segments that have done that well, they're going to they're going to have outsize outsize win rates. So we continue to see that.
Continue to happen.
Great Thats all I have thanks for taking my questions.
Okay.
Thank you. Our next question comes from Joe ruined with Bayer You May proceed with your question.
Okay.
Great Hi, everyone.
Maybe wanted to start just on the.
Customer ads in that corridor.
Keep up the torrid rates, you've been running at but it was I suppose a bit large.
Year end, one Q is that according to plan or maybe just a little more detail of the growth contributors for this quarter.
Sure so to your point, Joe in the quarter, we added a net approximately 400 customers.
That is lower than that really heightened or high rate from 2021.
But it at so its back closer to pre pandemic levels, although its still higher if you were to look at full year 2019, and you average across all those quarters, we're averaging about 300 a quarter. So this quarter, we're at 400, and so a bit higher than pre pandemic levels, but lower than last year, which was a very.
Hi, as you know as far as relative to our expectations right in line with our expectations. Our overall results, we actually delivered slightly higher.
On overall revenue really across the board based on solid performance as it relates to community activities and net customer adds.
Very much in line with our expectations.
Okay.
Just.
Looking at your guidance for the year, and taking kind of midpoint to midpoint.
If I true things up for the upside in <unk>.
The full year view is basically moving up pilot.
<unk> may be down a little bit if I take the EBITDA midpoint.
Is that may be just a function of your investment outlook, Chad, having expenditures more weighted future quarters or.
Any additional detail you can give there.
Sure. So when you look at it from an annual on you say, how does our current guidance compared to 90 days ago.
To your point, our revenue has increased the high end.
By a few hundred thousand dollars reflective of the beat from our high end in Q1, our EBITDA, we're actually taking up about a million and a half from 90 days ago.
Now when you look at our results in Q1, we did.
Significantly beat on the EBITDA side, that's primarily more timing of our hires so our guidance that we have for Q2 and the remainder of the year does take into account our expectation that we will be continuing to add those resources, particularly in the customer success area and also somewhat in the sales area.
Which was our plan all along is just happening a little bit later didn't get quite as many in Q1 as we had anticipated, but that's to meet the needs of our existing customers as well as the future opportunity we see in front of us.
Okay I'll leave it there thank you.
Okay.
Thank you. Our next question comes from Jason <unk> with Keybanc you May proceed with your question.
Great, Hey, Archie and Kim.
Good afternoon.
Eric I wanted to ask about carrier service.
It's been a couple of quarters since we've.
We've seen it now.
I would call in and then.
More broadly speaking the efforts expand the bond portfolio.
Yes, we continue to see momentum, we continue to see adoption on existing and new customers.
I think a couple of things one as we add new products. We also think that helps retention it helps win rates.
And obviously it helps us it helps our booth. So we continue to see momentum and will continue to see that.
To look at new opportunities for product expansion both for.
From <unk>.
Building it ourselves partnering and acquisitions.
Okay, Great and then more of a housekeeping question.
Union Central.
How did it perform in the corner.
Any anything anecdotal would be helpful. Thanks.
Sure So genius central App, we acquired that company in sort of mid Q4.
Some of the portfolio that that brought to us as well as a great team as well and it is performing right in line with what our expectations were for the quarter feel really good about it.
Okay, great. Thanks.
Yeah.
Thank you. Our next question comes from Mark Schappell with Loop capital You May proceed with your question.
Hi, Thank you for taking my thank you for taking my question Archie.
A question for you on staffing we're hearing several company managements discuss.
The challenging labor market for Archie talents more and more of these days I was wondering if you could just give us a sense.
If youre running on plan, maybe a little bit behind plan with respect to hiring and also too.
Could you maybe just address whether you are having to raise comp a little bit more just to just to stay competitive.
Yes, I think a couple of things one the job the job market has consistently been.
Tight I think if you go back to pre pandemic.
It feels in line with that.
Maybe even a little easier, but I think we had I think we had a year or two with.
Our company has had almost no turnover had almost no changes so.
Relative to that it's tougher, but relative to pre pandemic I would say, it's more more consistent than we've always tried to make sure we remain competitive in the marketplace with compensation.
Continue to do that.
Okay, great. Thanks, and then as a follow up in response to an earlier question around your analytics solution. You mentioned that I think the term you used that youre in a new air around the analytics product and I was wondering is that new era, because you've enhanced our solution over the last year or two or is it just because customers more aware of it and have a greater.
Need for the solution.
I think we will.
If you look back at the history of it analytics right before the pandemic hit we were seeing great momentum. We talked about are opening up our office in Europe , and overall were seeing great momentum and then when the pandemic hit it just all came to almost a complete stop.
For a couple of reasons one it wasn't the top priority two are at the very beginning it was viewed as discretionary spend.
Store closures et cetera people really backed off.
We actually had people moving back off of using different things for cost cutting measures et cetera, I think as we move forward and people are more confident in the long term and their long term future.
We're seeing it getting back to where it was before I think the other contributor to that is if you look at what's happened to E. Commerce since the beginning of 2020. The stores are playing a significantly larger role in E Commerce and for the first time at least I believe it's the first time stores retailer.
As brick and mortar retailers are using their stores as a competitive advantage for either shipping from those stores or pick up in stores.
So.
That is also another driver of analytics, which we think will continue forward.
So I think it's coming out of the pandemic phase.
Yes.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from Joe <unk> with Northland Capital You May proceed with your question.
Yes, Thank you and congrats on a solid quarter, especially what seems to be remaining a very tough E. Commerce market really shows that you guys are a very omni channel driven.
Real quickly you probably covered this in the script, but what was organic revenue growth rate for the quarter.
So we provide just the reported numbers and then just keep in mind the junior Central we said for the year that that would give about $3 million of revenue. So if you do the reverse math off of that Youll get yourself. The organic growth rate is just slightly below what the reported this.
Got it understood okay.
And then my favorite quarterly question.
You guys raised your long term growth rate from 10 plus percent a 15 plus percent I think almost a year ago, maybe nine months ago.
And part of that was an assertion that the opportunity at your skating to is a lot larger than the $5 billion that screen by $200000 200000 target customers with $25000 RP you got it.
Any updates on those parameters that would.
It would help to better frame, what the actual numbers that you're skating to them.
Sure So to your point, we do a we have communicated that we believe the opportunity is greater than 5 billion and we've also said we think that it's actually much greater than 5 billion are the primary driver as it relates to that is when we originally came up with that number it was on or think of it as our core fulfillment as well as our analytics product.
But as it as you know we have begun to start offering some.
New sources of revenue think of those as like add on products like carrier service, which was asked about earlier on this call.
And our expectation is over the years, we'll have an opportunity to continue to offer more and more of those.
Think of those as a product of revenue add ons and each of those would really actually be additive or make that opportunities significantly greater than $5 billion. So.
So we haven't updated that number yet simply because we already 5 billion relative to where we are as a huge opportunity and it just means the answer.
Just becomes that much larger there'll be a point in the future, where we will take the opportunity to update that number but.
Rest assured there's a lot of opportunity on the total addressable market that we see and with our leadership position. We really think we are the ones that are poised to.
To achieve that.
Got it and then with respect to the transportation services I think when you guys first introduced it and talked about in April 2020.
You were talking about being more of like a nominal fee.
What is actually that nominal fee level is it sort of like a basically $8000 a year.
And do you see that increasing.
Sure. So when you think about those and it might be relevant also as you just think about add on products in general.
When we think about that for an individual customer you can think of it as it may change how much they are paying us it could be as about a 10% uplift 10% to 20% depending on the customer.
Got it thank you very much.
Thank you. Our next question comes from Joe Goodwin with JMP Securities. You May proceed with your question.
Great Hi, Archie I can thank you so much for taking my question I know Europe's not a huge percentage of your total business, but just curious what youre seeing out there with everything going on if you've seen.
Any softness of the business.
We have not seen softness in our European business is more heavily focus on the analytics.
And we continue to see nice momentum.
They're as as we're seeing overall in our analytics business.
Seeing that customers are more and more committed to allowing this to help drive their revenue growth. So we're seeing nice nice strength there, but it's it is primarily.
In analytics in Europe , although we do have a nice fulfillment business, but our growth is coming from analytics.
Understood. Thank you and then just a quick follow up regarding M&A.
The valuations have come down.
Have you seen an influx in maybe inbound opportunities or if you could just talk about your M&A pipeline and how youre feeling about M&A.
Generally in the current environment.
Yeah, it's interesting because it doesn't.
Over the last 10 years, it doesn't appear that activity goes up or down all that significantly with.
With.
With the valuations going up and down it makes it easier or not in an upward trend actually.
Because we are tending to buy more private companies that are individual owned and so people have a.
Timing in their life when they want it when I saw that it seems for us to be a bigger driver so valuations coming down if anything that would make it slightly harder just because people are less likely to want to get out.
In times, but the pipeline continues pretty consistent with what it's been in the past.
Yes.
Thank you.
Thank you and that concludes our Q&A session.
This concludes today's conference call. Thank you for participating.
May now disconnect.
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