Q3 2023 SPS Commerce Inc Earnings Call
Good day and welcome to the F. P. S. Commerce Q3, 2023 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will.
Be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to <unk>.
Hermina plastic Investor Relations for S. P. S. Commerce. Please go ahead.
Thank you Dave.
Good afternoon, everyone and thank you for joining us on Sps Commerce third quarter 2023 conference call, we will make certain statements today, including with respect to where I 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 for a more detailed description of risk factors that may affect our results. These documents are available on our website Sps commerce dotcom and <unk> S.
He'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 dotcom.
During our call today, we will discuss adjusted EBITDA financial measures and non-GAAP income 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, Rami and welcome everyone.
As you all know in March we announced my planned retirement and in July we announced my successor.
On today's call I'm pleased to welcome Chad Collins, who assumed the role of CEO of Sps Commerce on October 2nd.
This earnings call is my laughs at S. P. S. After 22 years in my role as CEO.
I am extremely proud of what Sps has accomplished during that time.
The value, we bring to customers and trading partners across the retail industry is the result of extreme focus on customer success.
The culture of consistent execution, and our vision to be the world's retail network.
This is a legacy I leave in the break capable hands of an exceptional leadership team and talented employees around the world and I am confident Sps is positioned for continued success with Jack Collins at the helm.
Chad has been 25 years in supply chain technology building market leading businesses.
His leadership in the industry expert experience and focus on innovation aligned well with Sps as culture.
I look forward to continue working with chat as executive chair of the board.
Before I review Q3 results I'd like to hand, the call over to our new CEO and give you all the opportunity to hear about his initial impressions and what you can expect as he settles into his role.
Thank you Archie.
Time to be here and honored to succeed Archie at such an important time for the company and the industry.
I think the management team and the board for their trust in me to lead Sps Commerce in its next chapter of growth.
I spent the last 25 years focused on supply chain software since 2017, I have been CEO of high jump, which was rebranded Cooper supply chain in 2020 at which time I assumed the role of CEO of Cooper supply chain software.
During my tenure as CEO, we executed a buy and build strategy, resulting in a global leadership position within the warehouse management systems.
A key lesson I've learned during my career is that while supply chains are inherently multi participant most software is focused only on a single enterprise.
This is why SaaS networks like Sps are in a unique position to improve collaboration.
ETA accuracy and optimize supply chain operations.
I chose to join the Sps Commerce for three main reasons.
First as a longtime supply chain technologist I believe in the power of networks to unlock value for trading partners. This is demonstrated through the company's success and I'm highly confident it's differentiated network approach will provide long term value and an ongoing opportunity for growth.
Second Sps as a strong corporate culture.
Well respected employer in my hometown of Minneapolis.
I've worked with many S. P S employees to a mutual partnerships and I found Sps company values to be consistent with my own inconsistent with values that lead the market success.
Lastly, I believe my experience in supply chain software SaaS product strategy Global go to market expansion and M&A position to lead S. P. S. As we capitalize on growth opportunities fueled by Omnichannel retail dynamics.
Over the next couple of quarters, I will dive into our product strategy and roadmap engage with customers and spend time with employees across the globe to begin building relationships and reinforcing the culture that has established S. P. S. As a successful organization with a very exciting future.
I look forward to giving you an update on our next earnings call. After my first full quarter in the role.
In the meantime, I hope to meet some of you over the next several months.
Now I'd like to turn the call back to Archie for a review of third quarter results. Thanks, Chad.
Our third quarter performance reflects the ongoing investments in optimization and automation across the retail industry and the role Sps plays in helping our customers achieve operational efficiencies while scaling their businesses.
Total revenue in Q3 was $135 $7 million, which grew 18% in the quarter while recurring.
Recurring revenue grew 20%.
Retailers and suppliers looking to expand globally rely on Sps for access to centralized data and streamline fulfillment processes across different markets.
For example, Deckers, a footwear designer and distributor, which includes the odd Chiba and HOKA brands has been a longtime Sps analytics customer in North America.
As they expand their vendor base to Europe, Deckers chose sps's fulfillment solutions to ensure they can serve as a growing number of retailers across North America and Europe.
<unk>, an American manufacturer of golf equipment, and apparel acquired Jetblue, Jack Wolfcamp, a premium outdoor brand headquartered in Germany.
Having been a longstanding fulfillment and analytics customer in North America, and Australia, Callaway chose Sps to centralize their ATI needs across their global supply chain.
S suppliers expand their network across multiple sales channels and retailers.
Real time inventory management becomes increasingly more important.
Starboard cruise services, a division of Lv M. H is known as the preferred partner for luxury retail etsy.
With over 700 stores on over 100 ships across 15 cruise lines.
Our board understood the need for efficiency across our supply chain and chose to work with Sps to standardize and automate their electronic order fulfillment.
To underscore the importance of this initiative.
Our board chose to share sales data with their vendors using Sps commerce analytics solution, which drove significant E D I adoption exceeding starboards expectations.
Yeah.
To support our customers' growth Sps continues to invest in solutions to enable expansion across various sales channels and across markets worldwide.
Last month, we completed the acquisition of pie kinetics to strengthen our E invoicing capability and expand our European presence.
We also acquired the orders change one of our technology partners in Australia.
<unk> suppliers to link their line of business applications in a major retailer supply chains.
We believe that integrating best of breed technology with the Sps platform will enhance our ability to support and grow our network.
We're excited to welcome our new employees and customers to Sps Commerce.
With that I'll turn it over to Kim to discuss our financial results. Thanks, Archie we had a great third quarter of 2023 revenue was $135 $7 million, an 18% increase over Q3 of last year and represented a 91st consecutive quarter of revenue from.
Recurring revenue this quarter grew 20% year over year.
The total number of recurring revenue customers increased 13% year over year to approximately 44500 and wallet share increased 7% to 11600 gig.
As a reminder, in September we closed the acquisition of Pie kinetics, which added approximately a thousand customers to our network.
For the acquired adjusted EBITDA grew 17% to $45 million compared to $34 7 million in Q3 of last year.
We ended the quarter with total cash and investments of $239 million.
Now turning to guidance for the fourth quarter of 2023, we expect revenue to be in the range of $142 $2 million to a $143 $2 million, which represents approximately 17% year over year crap.
We expect adjusted EBITDA to be in the range of 45 million to $41 $3 million.
We expect fully diluted earnings per share to be in the range of 40 to 42 cents.
Fully diluted weighted average shares outstanding of approximately 37 7 million shares.
We expect non-GAAP diluted income per share to be in the range of 67 to.
Ah 69 cents and stock based compensation expense of approximately $10 million.
<unk> expense of approximately $5 $1 million in amortization expense of approximately $4 $5 million.
For the full year, we expect revenue to be in the range of $534 2 million to $535.2 million, representing approximately 18% to 19% growth our 2022 weeks.
We expect adjusted EBITDA to be in the range of $156 2 million to $157 million representing growth of approximately 18% to 19%.
We expect fully diluted earnings per share to be in the range of $1 65 to $1 67 with fully diluted weighted average shares outstanding.
$37 5 million shares.
We expect non-GAAP diluted income per share to be in the range of $2 77 to $2 79.
Stock based compensation expense of approximately $46 $1 million depreciation expense of approximately $19 million and amortization expense for the year of approximately $15 $6 million.
For the remainder of the year on a quarterly basis investors should model approximately a 30% effective tax rate calculated on GAAP pretax net earnings.
Beyond 2023, we maintain our annual revenue growth expectation of 15% or greater as we expand our network through community enablement campaigns and acquisitions.
We will provide detailed 2020 for guidance on our Q4 earnings conference call.
For modeling purposes, we expect to deliver approximately 181 million to $184 million in annual adjusted EBITDA in 2024, or approximately 15% to 17% year over year growth.
Beyond 2024, 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.
And the long term, we maintain our target model for adjusted EBITDA margin of 35%.
In summary S. P. S continues to grow with global network, strengthening our competitive position and expanding our leadership across various industry I would like to welcome Chad to the S. T. S team and look forward to working together as we execute on S. T. S. A strategy to be the world's retail network and continue to deliver sustained.
<unk> growler.
With that I'd like to open the call to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Our first question comes from Scott Berg with Needham. Please go ahead.
Yeah.
Hi, Scott Your line is now live.
Hi, everyone.
That's on a good quarter and thanks for taking my questions here before I get to the question. So Archie it's 13 years, it's been an amazing run.
Good luck getting at what all the retirement plans may look like.
But on the question side first of all Ken wanted to start with your adjusted EBITDA guidance for next year. It is on the lower end of your typical kind of 15% to 25%.
<unk> had growth in adjusted EBITDA on an annual basis can you talk about maybe some of the investments or acquisition impact that's guiding that number it's a baby would be on the lower end versus kind of mid to upper end of that range.
Sure to your point, we do have a guidance of anywhere between 15% to 25% on an annual basis. This year, our expectation is closer to that middle next year going into the year at this point, we're on the lower end to that 15% to 17%, which we think is appropriate based on what we see as opportunities for the business.
Operator: Good day and welcome to the SPS Commerce Q3 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance please signally conference specialist by pressing the star key followed by zero.
To grow topline as well as invest back in the business also do keep in mind that in 2024, when we when we announced the acquisition of Pie kinetics at that time. We also said that in 2024, we expected that portion of the business to be breakeven in EBITDA.
Operator: After today's presentation there will be an opportunity to ask questions to ask a question. You may press star then one on a touch tone phone to withdraw your question. Please press star then two.
Got it helpful and then Chad welcome to the team I look forward to working with you more going forward, but I wanted to ask a question in your recent experience from Korba Koerber was an international company based in Germany I believe.
Operator: Please note this event is being recorded.
Irmina Blaszczyk: I would now like to turn the conference over to Irmina Blaszczyk, Investor Relations for SPS Commerce. Please go ahead. Thank you Dave.
You've had a pretty extensive experience historically with international supply chain software and operations I guess when I look at the S. P. S business, while it's not 100% U S centric. It has had more of a U S centric flavor to it that's something that's truly.
Irmina Blaszczyk: Good afternoon everyone and thank you for joining us on SPS Commerce Q3 2023 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 transaction and penetration with retailers and other customers.
Having the same impact on a global basis, but how do you think about growing internationally, bringing new products to the international product portfolio.
Irmina Blaszczyk: 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 to three events or otherwise. Please refer to our SEC filings specifically or form 10k as well as our financial results press release for a more detailed description of risk factors that may affect our results. These documents are available at our website SPSCommerce.com and at the SEC 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.
To make it must be a business that has a you know what you said.
Really outstanding International footprints that are probably a little bit more balance than just in the United States. Thank you.
Yeah. Thanks, Scott Thanks for the warm welcome and yes.
Obviously, one of the growth vectors that we will be looking at is geographic expansion.
I will say that the acquisition that we did have tie I think gives us a nice jumping off point and has been noted in the last quarter. Obviously the component of E. Invoicing is a little bit different in Europe than what we see.
Here in North America, and so I think that are you know continued execution.
Ty will help us develop our framework for expansion into Europe, and then potentially other markets outside North America.
Irmina Blaszczyk: During our call today we will discuss adjusted EBDA financial measures and non-gap income per share and our press release and our filings with the SEC each of which is posted on our website.
Great. That's all I have congrats on a good quarter again.
Irmina Blaszczyk: You will find additional disclosures regarding these non-gap financial measures including reconciliations of these measures with comparable gap measures and with that I will turn the call over to Archie. Thanks Sermina and welcome everyone.
Okay.
Our next question comes from Matt Pfau.
With William Blair. Please go ahead.
Okay, great. Thanks for taking my questions and congrats Archie on on a great run and a welcome Chad good to speak with you again I wanted to ask a Chad a question to you.
Archie Black: As you all know in March we announced my plan retirement and in July we announced my successor.
Chad Collins: On today's call I am pleased to welcome Chad Collins who assumed the role of CEO of SPSCommerce on October 2nd.
As you've looked at the company, obviously Sps has done a great job with fulfillment and then.
Archie Black: This earnings call is my last at SPS after 22 years in my role at CEO. I am extremely proud of what SPS has accomplished during that time. The value we bring to customers and trading partners across the retail industry is the result of extreme focus on customer success, a culture of consistent execution and a vision to be the world's retail network. This is a legacy I leave in the very capable hands of an exceptional leadership team and talented employees around the world.
I'm starting to get into analytics from a product perspective are there any areas that stand out to you as opportunities where S. P. S can expand into.
Yeah, absolutely I mean, clearly sps's established a leadership position in the network that connects our retailers and distributors to the suppliers.
I think what we see in supply chain technology and overall it is there is quite a bit of innovation going on as.
As well as the landscape is fairly fragmented and I think that gives me confidence that if we keep the customer needs that are at a forefront of our product roadmap, whether it's through organic product development or through M&A, we will be able to satisfy those customer requirements in a more fulsome way over time.
Archie Black: And I am confident SPS is positioned for continued success with Chad Collins at the helm. Chad has spent 25 years in supply chain technology building market leading businesses. His leadership and industry experience and focus on innovation aligned well with SPS's culture.
Yeah.
Archie Black: I look forward to continue working with Chad as executive chair of the board.
Got it and then just wanted to ask on the macro environment, Yeah, a lot of.
Chad Collins: Before I review Q3 results, I'd like to hand the call over to our new CEO and give you all the opportunity to hear about his initial impressions and what you can expect as he settles into his role. Thank you Archie. I'm excited to be here in honor to succeed Archie at such an important time for the company and the industry. I want to thank the management team and the board for their trust.
Uncertainty here heading into the holiday season for retailers and what that is ultimately going to look like and does that have any impact in terms of demand for for your products from from the suppliers. Thanks.
Yeah, absolutely there are certainly some mixed signals out there on one hand, we're seeing some consumer and retail positive dynamics, but when we talk to our customers. There's a lot of uncertainty in the retail landscape right now and I would just remind everybody that you know.
Chad Collins: I trust and need to lead SPS Commerce in its next chapter of growth. I spent the last 25 years focused on supply chain software. Since 2017, I have been CEO of High Jump, which was rebranded Kerber Supply Chain in 2020. At which time, I assume the role of CEO of Kerber Supply Chain software. During my 10 years CEO, we executed a buy and build strategy, resulting in a global leadership position within warehouse management systems.
Retail outlook is not a direct bellwether on Sps performance.
In General you know.
S. P. S. When we have more changes in dynamics driven by omni channel S. P. S tends to do better given those omni channel changes.
Chad Collins: A key lesson I've learned during my career is that while supply chains are inherently multi-participant, most software is focused only on a single enterprise. This is why SaaS networks like SPS are in a unique position to improve collaboration and data accuracy and optimize supply chain operations.
Great. Thank you.
Our next question comes from Parker Lane with Stifel. Please go ahead.
Yeah, Hi, Thanks for taking the question and congrats on a great run here Archie.
Just jumping in on the recurring revenue customer growth here, even if you back out tie it looks like it was a nice tick up from where we were last quarter anything to call out about.
Chad Collins: I chose to join SPS Commerce for three main reasons. First, as a longtime supply chain technologist, I believe in the power networks to unlock value for trading partners. This is demonstrated through the company's success, and I'm highly confident it's differentiated network approach will provide long-term value and an ongoing opportunity for growth. Second, SPS has a strong corporate culture and is a well-respected employer in my hometown in Minneapolis. I've worked with many SPS employees through our mutual partnerships, and I've found SPS company values to be consistent with my own and consistent with values that lead the market success.
An environment or community enablement campaign activity and then you know you've also acquired a few businesses over the last year and expanded in some interesting new markets. How should we think about that balance of recurring revenue growth through customers versus wallet share in the context of that going forward.
Sure sure Parker, so as it relates to the customer adds you are correct that sequentially went up about 1500, and then again, we had mentioned that the Thai kinetics acquisition.
US approximately 1000 net new customers. So outside of that you are correct. It was a little bit higher than a typical quarter for us for our customer adds are we had a nice quarter of community enablement activity and that still does remain the largest contributor or driver to our net customer adds so feel.
Chad Collins: Lastly, I believe my experience in supply chain software, SaaS product strategy, global go-to-market expansion, and M&A position you need to lead SPS as we capitalize on growth opportunities fueled by Omnitune retail dynamics. Over the next couple quarters, I will dive into our product strategy roadmap, engage with customers, and spend time with employees across the globe to begin building relationships, and reinforcing the culture that has established SPS as a successful organization with a very exciting future.
I feel really good about that and then as it relates to the mix between sort of net customer adds as well as the ARPA or wallet share overall, both we believe we will continue to be an important driver to that overall growth of 15% that we believe we can sustainably deliver them.
Some years it might be a little bit more in one area than the other you may recall back at the sort of the height of that during the pandemic, we had a sort of a record number of net customer adds back in 2021 and.
Chad Collins: I look forward to giving you an update on our next earnings call after my first full quarter in the role. In the meantime, I hope to meet some of you over the next several months.
Just as a reminder, when we when we bring on a customer through a community enablement campaign, typically theyre going to be a smaller sized customer when they first join us, but then we have the opportunity to grow that revenue where that customer over time. So I think the key takeaways you should expect both will continue to be important in delivering that overall, 15% topline growth.
Archie Black: Now, I'd like to turn the call back to Archie for a review of third quarter results. Thanks, Chad. Our third quarter performance reflects the ongoing investments in optimization and automation across the retail industry, and the role SPS plays in helping our customers achieve operational efficiencies while scaling their businesses.
Got it appreciate that and then Tim sticking with you looking at the implied op margins for the fourth quarter. It looks like a slight downtick from <unk> is that primarily acquisition related impacts or is there some additional investment you're putting into the business in <unk>.
Archie Black: Total revenue in Q3 was 135.7 million dollars, which grew 18% in the quarter, while recurring revenue grew 20%. Re-tailers and suppliers looking to expand globally, rely on SPS for access to centralized data and stream line fulfillment processes across different markets. For example, Decker's a footwear designer and distributor, which includes the bug, Tiva and Holka brands, has been a longtime SPS analytics customer in North America. As they expanded their vendor base to Europe, Decker's chose SPS's fulfillment solution to ensure they can service a growing number of retailers across North America and Europe.
Sure. Great question is it's primarily going to be acquisition related if you look at our Q4 guidance that we just provided and if you were to compare that to the Q4 implied guidance from our last quarter's conference call. It's basically exactly the same except we've added in our expectation of tie.
So just as a reminder, when we announced the <unk> acquisition, we said it would deliver approximately $3 9 million of revenue in Q4 and contribute a negative 500000 in EBITDA in Q4.
Archie Black: Callaway, an American manufacturer of golf equipment and a peril, acquired Jack Wolfskin, a premium outdoor brand headquartered in Germany. Having been a long-standing fulfillment and analytics customer in North America and Australia, Callaway chose SPS to centralize their EDI needs across their global supply chains. As suppliers expand their network across multiple sales channels and retailers, real-time inventory management becomes increasingly more important. Starboard Cruise Services, a division of LVMH, is known as the preferred partner for luxury retail at sea, with over 700 stores on over 100 ships across 15 cruise lines.
So for the most part that's really that the contribution or the Arda are the reason why you're seeing that go down a little bit.
Understood I appreciate the feedback thanks again.
The next question comes from Joe <unk> with Baird. Please go ahead.
Alright, great and hi, everyone, Hi, Doug Congrats Archie.
Really it pains me to say, let's try that looks like Mark how it's going to have a pretty good team. This year. So it leaves one one thing to do not.
Not that you're stepping away completely but maybe.
Maybe I'll follow up on Matt's question for Archie and Chad.
When you think about more ways you can ultimately help customers would you may be starts.
Archie Black: Storeboard understood the need for efficiency across the supply chain and chose to work with SPS to standardize and automate their electronic order fulfillment. To underscore the importance of this initiative, Starboard chose to share sales data with their vendors using SPS Commerce Analytics solution, which drove significant EDI adoption, exceeding Starboard's expectations.
Start to point Chad to your background, obviously, a long tenure with warehouse management, but that quarter.
Picked up exposure, the logistics management and order management or those kind of the relevant adjacencies that might also pop up here at Sps or is that really not the most direct way you would think about way products on the network can grow overtime.
Archie Black: To support our customers growth, SPS continues to invest in solutions to enable expansion across various sales channels and across markets worldwide.
Yeah, I think the keys.
Two our product.
Archie Black: Last month, we completed the acquisition of TIE-kinetics, to strengthen our EIN voicing capability, and expand our European presence. We also acquired the order exchange, one of our technology partners in Australia, who enables suppliers to link their line of business applications in the major retailer supply chains. We believe that integrating best-of-breed technology with the SPS platform will enhance our ability to support and grow our network.
Roadmap, whether it be organic or organic will be looking at you know how how we can best help the customer and most likely that will include somehow leveraging.
The differentiated network and the data from the network that we already have and.
I think that could.
Different different categories or whatnot nesters necessarily say warehouse management, given my background immediately jumps to the top of the list.
But I do think theres lots of opportunities given the size of the customer base. The differentiated network, we have to start with the customer and then determine are we better off building those solutions for our customers.
Archie Black: We're excited to welcome our new employees and customers to SPS Commerce.
Kimberly Nelson: With that, I'll turn it over to Kim to discuss our financial results. Thanks, Archie. We had a great third quarter of 2023.
Or getting there faster by making strategic acquisitions.
Kimberly Nelson: Revenue was $135.7 million, an 18% increase over two-three of last year, and represented our 91st consecutive quarter of revenue growth. Recurring revenue this quarter grew 20% year over year. The total number of recurring revenue customers increased 13% year over year, to approximately 44,500, and while it share increased 7% to 11,650.
Okay, that's great.
And then one for Kim if I take your <unk> revenue guidance and then just back out it's like you said about a tie.
It does look like the implied organic growth rate is stepping down relative to <unk>.
Then 16% plus all year.
Kind of explicit reasons for why that might be forecasted in the year end.
Kimberly Nelson: As a reminder, in September, we closed the acquisition of TIE-kinetics, which added approximately 1,000 customers to our network. For the quarter, adjusted EBITDA grew 17% to $40.5 million compared to $34.7 million in Q3 of last year. We ended the quarter with total cash and investments of $239 million.
So when we think about Q4, just a couple of things when you're looking at the overall expected number or do you keep in mind, you're starting to lap some acquisition for them then we have the new acquisition.
But at a high level the way we look at it is our expectations for Q4 are basically exactly where they were on our last earnings call and so no real change as it relates to our expectation of the business and the opportunity that we see in front of us and again, how I'm getting there is if you look at the implied Q4 guidance. We gave on our July earnings.
Kimberly Nelson: Now, turning to guidance. For the fourth quarter of 2023, we expect a revenue to be in the range of $142.2 million to $143.2 million, which represents approximately 17% year-over-year growth. We expected just at Ibadah to be in the range of $40.5 million to $41.3 million. We expect fully diluted earnings per share to be in the range of $40 to $42, with fully diluted weighted average shares outstanding of approximately $37.7 million shares.
Calm and you would Java and you add in into that number Pi you get very close to what we just guided to technically we guided up a slightly EBITDA.
Okay. Thank you very much.
Kimberly Nelson: We expect non-gap diluted income per share to be in the range of $67 to $69, with stock based compensation expense of approximately $10 million, depreciation expense of approximately $5.1 million, and amortization expense of approximately $4.5 million. For the full year, we expect a revenue to be in the range of $534.2 million to $535.2 million, representing approximately 18% to 19% growth over 2022. We expected just at Ibadah to be in the range of $156.2 million to $157 million, representing growth of approximately 18% to 19%.
Our next question comes from Jeff Van <unk> with Craig Hallum. Please go ahead.
Great. Thanks for taking the questions Chad and look forward to getting to know you better and certainly argue 20 years just exceptional.
The exceptional just amazing run so congrats and wish you all the best a couple of questions for me. The you commented on the behavior of the you know the target customers that are getting a bit more cautious I.
What is the pipeline of enablement campaigns look like how was that more cautious behavior within the target customers sort of manifesting if you could expand on that.
Kimberly Nelson: We expect fully diluted earnings per share to be in the range of $1.65 to $1.67, with fully diluted weighted average shares outstanding of approximately 37.5 million shares. We expect non-gap diluted income per share to be in the range of $2.77 to $2.79, with stock based compensation expense of approximately $46.1 million, depreciation expense of approximately $19 million, and amortization expense for the year of approximately $15.6 million. For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on gap pre-tax net earnings.
Yeah, obviously the guidance reflects our pipelines overall and.
Oh the area that does not tend to go negative in fact, a lot of times it goes positive.
It is the retail enablement campaigns, we've seen over history, whether it's 2008 nine or beginning of the pandemic is that the retail community enablement campaigns, if anything move up.
Reminder, that from a retailer standpoint.
We don't take it <unk> take very much of the economics on the retailers so when they're cautious, especially about spending we will move up what I call. The priority line and so that part of the business tends to improve.
Kimberly Nelson: Beyond 2023, we maintain our annual revenue growth expectation of 15% or greater, as we expand our network through community enablement campaigns and acquisitions. We will provide detailed 2024 guidance on our Q4 earnings conference call, but from modeling purposes, we expect to deliver approximately 181 million to 184 million in annual adjusted Ibadah in 2024, or approximately 15 to 17% year over year growth. Beyond 2024, we continue to expect adjusted Ibadah 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 Ibadah margin of 35%.
Improve obviously, theres plusses and minuses channel can go up or down depending on what's happening in analytics tends to be a lot a slight negative. So you know in these times all the numbers tend to stay pretty consistent underneath the covers there's a lot of puts and takes but.
The retailer part of the world tends to not get hurt at all in fact, there's a lot of times it improves.
Got it and then I guess just a longer term question. When you look over the last several years, how is what you're displacing changing.
Okay.
I would say it has remained fairly consistent over.
Over the last several years, obviously, if you look at the numbers over the last decade, we've clearly moved upstream.
Kimberly Nelson: In summary, SPS continues to grow its global network, strengthening our competitive position and expanding our leadership across various industries. I would like to welcome Chad to the SPS team and look forward to working together as we execute on SPS strategy to be the world's retail network and continue to deliver sustained profitable growth.
We've been.
Very effective at doing that we continue to displace.
Paper and fax from retailers that arent automating their supply chains and <unk> suppliers that have not worked with retailers in an automated way. So we continue to see that in our enablement campaigns, where somebody has not been exposed.
Operator: With that, I'd like to open the call to questions. We will now begin the question and answer session to ask a question you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Thank you.
Obviously in today's world, it's significantly easier to start a brand to start a new supplier company. So we continue to see that we continue to see people as especially as they move ERP systems to move away from legacy software and do it yourself. So that trend continues so I would say over the last two or three years not much change over the last decade.
Scott Berg: Our first question comes from Scott Berg with Needham. Please go ahead. I Scott, your line is now live. Hi everyone, congrats on the good quarter and thanks for taking my questions here. Before I get to the question, though, Archie, it's 13 years. It's been an amazing run.
Clearly moved upstream.
Which is why one of the reasons why our ARPA has increased so dramatically over the last decade.
Yeah makes sense I'll leave it there thank you.
Next question comes from Mark <unk>.
<unk> with loop capital markets. Please go ahead.
Hi, Thank you for taking my question or not.
And congrats on the on your <unk>.
I'm with Sps solution I was wondering if you could start with you. If you could provide maybe some additional details around the order exchange in terms of maybe some market areas that they focus on are very strong in.
Scott Berg: Good luck in what all the retirement plans may look like.
Kimberly Nelson: But on the question side, first of all, Kim, wanted to start with your adjusted EBITDA guidance for next year. It is on the lower end of your typical kind of 15 to 25% expected growth in a just EBITDA on an annual basis. Can you talk about maybe some of the investments or acquisition impact that's guiding that number to baby be on the lower? Or versus the mid to upper end of that range?
Number of employees or were they profitable thing and things of that nature.
Yeah, it's it's a very small acquisition.
About 10 employees.
And this company was really built to help implement Sps commerce customers, starting in Australia, and where their expertise has been as I would call the long tail or the one off ERP systems, where they're integrating.
Kimberly Nelson: Sure. To your point, we do have a guidance of anywhere between 15 to 25% on an annual basis. This year, our expectation is closer to that middle. Next year, going into the year at this point, we're on the lower end to that 15 to 17% which we think is appropriate based on what we see as opportunities for the business to grow top line as well as invest back in the business. Also, do keep in mind that in 2024, when we, when we announced the acquisition of pie kinetics, at that time, we also said that in 2024, we expected that portion of the business to be break even in EBITDA. Got it helpful.
Today I'm gonna have built some expertise there.
When you look at the deal it makes a lot of sense for a couple of reasons, one well first off it's very small, but what we found is when we make acquisitions of partners like this.
Significantly smaller than map, a doctor or a data maisons, but we have seen that we ended up having a better customer experience and we ended up having a little bit more sales momentum.
One of the things that's a little bit unique on this deal is although it wasn't the other deals as well is that almost all of their revenue was already flowing through Sps commerce, So you're not seeing a pickup on revenue, but now we control the revenue we control the proprietary proprietary information and we can more integrated that.
Scott Berg: Then Chad, welcome to the team. I look forward to working with you more going forward. But I wanted to ask you a question in your recent experience from Corber. Corber was an international company based in Germany. I believe you've had a pretty extensive experience historically with international supply chain software operations. I guess when I look at the SPS business, well, it's not 100% U.S, centric. It has had more of a U.S, centric flavor to it than something that's truly having the same impact on a global basis.
Into our business, so really excited about the team there and the.
The skill sets.
Great. Thanks, and then you mentioned ERP just to stay on that theme I was wondering if you just comment on what Youre seeing with respect to the ERP implementation side of your business.
Chad Collins: But how do you think about growing internationally, bringing products to the international product portfolio to making this be a business that has just a really outstanding international footprint that is probably a little bit more balanced than just in the United States. Yeah, thanks Scott. Thanks for the warm welcome. And yes, obviously one of the growth vectors that we know we're looking at is geographic expansion. I will say that the acquisition that we did of tie I think gives us a nice jumping off point and has been noted in the last quarter, obviously the component of invoicing is a little bit different in Europe than what we see here in North America. And so I think that, you know, continued execution on tie will help us develop our framework for expansion in the Europe and then potentially other markets outside North America.
Particularly automotive supplier community.
Go ahead, yeah, Hey, it continues to be I would say in the small market mid market. It continues to be very strong in the enterprise. It is a little slower not substantially but slightly slower but people continue to move forward.
So many challenges at our suppliers and retailers have that they don't if they don't fix their base.
Infrastructure, they're just not going to be able to meet the demands of the customer. So that is what's driving it it's not need new technology. It's just a fundamentally are not able to meet the demands of their customer unless they.
I really do some upgrading which obviously includes some of our products as well.
Great. Thank you that's all that's all.
Again, if you have a question. Please press Star then one.
Our next question comes from Kneehole, Chuck Ski with Northland Capital markets. Please go ahead.
Scott Berg: Great. That's all I have. Congrats on the good quarter. Thank you.
Oh, yeah, Thank you and congratulations Archie on an incredible career.
Matt Fah: Our next question comes from Matt Fah with William Blair.
Look forward to working with you you talked about it in your introductory remarks, the values in networks, especially for your customers.
Matt Fah: Please go ahead. Hey, great. Thanks for taking my questions and congrats, Archie, on a great run. And welcome, Chad, good to speak with you again.
In the context of the international footprint of CSC has what do you think can be done to enhance that value such that it becomes similar to the way it is in the United States.
Chad Collins: I wanted to ask a Chad question to you. As you've looked at the company, obviously SPS has done a great job with fulfillment and then, you know, they started to get into analytics. From a product perspective, are there any areas that stand out to you as opportunities where SPS can expand into? Yeah, absolutely. I mean, clearly SPS has established leadership position in the network that connects retailers and distributors to the suppliers.
Yeah, I would say that from a from a customer's view I.
I think the value is quite similar frankly in terms of the value that we're able to provide a customer and connecting.
Connecting with their trading partners and getting access to more data utilizing our network whether that customer is in the U S or Canada in Europe or in Australia, I think sort of as a percentage of our business. Obviously, it's dominated by <unk>.
Chad Collins: You know, I think what we see in supply chain technologies overall is quite a bit of innovation going on, as well as the landscape is fairly fragmented. And I think that gives me confidence that if we keep the customer needs that are in our forefront of our product roadmap, whether it's through organic product development or through M&A, we'll be able to satisfy those customer requirements in a more full some way over time.
In North America.
As I mentioned earlier I do think there's opportunity to expand on the geographic vector.
What I would say is some of the transactions and approaches across the network do vary a little bit by geography and.
Back to my comments before on tie I think particularly with respect to Europe. It gives us a nice beachhead into Europe.
With that acquisition, especially relative to the specific electronic capability of E invoicing.
Chad Collins: Got it. And then just wanted to ask on the macro environment, you know, a lot of uncertainty here, heading into the holiday season for retailers and what that is ultimately going to look like. And does that have any impact in terms of demand for your products from the suppliers?
Thank you very much.
This concludes our question and answer session I would like to turn the conference back over to Archie Black for any closing remarks.
Chad Collins: Thanks. Yeah, absolutely. There's certainly some mixed signals out there on one hand. We're seeing some consumer and retail positive dynamics. But when we talk to our customers, there's a lot of uncertainty in the retail landscape right now. And I would just remind everybody that, you know, kind of retail outlook is not a direct bill whether on SPS performance. And in general, you know, SPS when we have more changes in dynamics driven by omnichannel SPS tends to do better given those omnichannel changes.
Chad Collins: Great.
Thank you Dave before we end the call a big Thank you to the management team Sps commerce customers for their support during my 22 years at the company and to all Sps employees for their unwavering dedication to our vision.
Chad Collins: Thank you.
I've truly had the privilege to work with and lead an exceptionally talented group of people and I'm proud that together, we build a company that has consistently delivered exceptional results for our customers and shareholders and.
And lastly, I would like to also acknowledge Kim Nelson and her commitment to excellence throughout our 16 year partnership, including our successful IPO and 55 earnings reports.
Parker Lane: Our next question comes from Parker Lane with Steve. Please go ahead. Yeah, I think you're taking the question and congrats on a great run here, Archie. Just jumping in on the recurring revenue customer growth here, even if you back out tie, it looks like it was a nice pickup from where we were last quarter. Anything to call out about demand environment or community enablement campaign activity. And then, you know, you've also acquired a few businesses over the last year and expanded in some interesting new markets. How should we think about that balance of recurring revenue growth through customers versus wallet share in the context of that going forward?
In addition to being a fantastic the CFO Kim has been a thought partner a strategic adviser and a trusted confidante.
I wish Cam chat in Sps team continued success in the years ahead.
Thank you all for your time today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Kimberly Nelson: Sure. Sure, Parker. So as it relates to the customer ads, you are correct. It's sequentially went up about 1500. And then again, we had mentioned that the Thai kinetics acquisition brought us approximately 1000 net new customers. So outside of that, you are correct. It was a little bit higher than a typical quarter for us for customer ads. We had a nice quarter of community enablement activity and that still does remain the largest contributor or driver to our net customer ads.
Kimberly Nelson: So feel really good about that. And then as it relates to the mix between sort of net customer ads as well as the RPU or wallet share, you know, overall, both we believe will continue to be an important driver to that overall growth of 15% that we believe we can sustainably deliver. Some years it might be a little bit more in one area than the other. You may recall back at the sort of the height of during the pandemic.
Kimberly Nelson: We had sort of a record number of net customer ads back in 2021. And this is a reminder when we bring on a customer through a community enablement campaign. Typically, there are going to be a smaller size customer when they first join us. But then we have the opportunity to grow that revenue with that customer over time. So I think the key takeaways you should expect both will continue to be important in delivering that overall 15% top-line growth.
Kimberly Nelson: I got it. Appreciate that. And then sticking with you, looking at the implied op margins to the fourth quarter, looks like it's slight down tick from 3Q. Is that primarily acquisition related impacts, or is there some additional investment you're putting into business in 4Q? Sure, great question. It's primarily going to the acquisition related. If you look at our Q4 guidance that we just provided, and if you were to compare that to the Q4 or implied guidance from our last quarter's conference call, it's basically exactly the same, except we've added in our expectation of pi.
Kimberly Nelson: So just as a reminder, when we announced the pi acquisition, we said it would deliver approximately 3.9 million of revenue in Q4 and contribute a negative 500,000 in EBITDA in Q4. So for the most part, that's really the contribution or the reason why you're seeing that go down a little bit. Understood. Appreciate the feedback. Thanks again.
Joe Ruink: The next question comes from Joe Ruink with Baird. Please go ahead. Great. Hi, everyone. Big congrats to Archie. It really pains me to say this, but it looks like Mark out's going to have a pretty good team this year. So at least we'll have one.
Joe Ruink: One thing to do, not that you're stepping away completely, but maybe I'll follow up on Matt's question for Archie and Chad. When you think about more ways, you can ultimately help customers. Would you maybe start to point Chad to your background, obviously, along tenure with warehouse management, but then Corbyr, you know, picked up exposure to logistics management, order management. Are those kind of the relevant adjacencies that might also pop up here at SPS or is that really not the most direct way you would think about way products on the network can grow over time.
Joe Ruink: Yeah, I think the keys to our product roadmap, whether it be organic or in an organic will be looking at, you know, how we can best help the customer in most likely that will include somehow leveraging the differentiated network and the data from the network that we already have. And, you know, I think that could lead to different different categories that would not necessarily say warehouse management, give a mic background immediately jumps to the top of the list.
Joe Ruink: But I do think there's lots of opportunities given the size of the customer base, the differentiated network we have to start with the customer and then determine, are we better off building those solutions for our customers, or getting there faster by making strategic acquisitions.
Kimberly Nelson: Okay, that's great. And then one for Kim, if I take your four to revenue guidance and then just back out what you said about tie it does look like the implied organic growth rates is stepping down relative to, you know, it's been 16% plus all year. Any kind of explicit reasons for why that might be forecasted in the year end. Sure, when we think about Q4, there's a couple of things when you're looking at the overall expected number.
Kimberly Nelson: Do keep in mind you're starting to lapse some acquisitions than we have the new acquisition. But at a high level the way we look at it is our expectations for Q4 are basically exactly where they were on our last earnings call. So no real change as it relates to our expectation of the business and the opportunity that we see in front of us. And again, how I'm getting there is if you look at the implied Q4 guidance we gave on our July earnings call and you would jump and you add in to that number, Ty, you get very close to what we just guided to. Technically we guided up a slightly the EBITDA. Okay, thank you very much.
Jeff Van Rae: Our next question comes from Jeff Van Rae with Craig Hallum. Please go ahead. Great. Thanks for taking the questions.
Chad Collins: Chad, before getting to know you better and certainly R220 years, just exceptional, just amazing run. So congrats and wish all the best. A couple of questions for me, you commented on the behavior of the target customers getting a bit more cautious. What is the pipeline of enablement campaigns look like? How is that more cautious behavior within the target customers sort of manifesting if you could expand on that? Yeah, obviously the guidance reflects our pipelines overall and the area that does not tend to go negative.
Chad Collins: In fact, a lot of times it goes positive is the retail enablement campaigns. We've seen over history whether it's 2008, 2009 or beginning of the pandemic is that the retail community enablement campaigns, if anything, move up. Reminder that from a retailer standpoint, we don't take very much of the economics from the retailer. So when they're cautious, especially about spending, we will move up what I call the priority line. And so that part of the business tends to improve, obviously there's pluses and minuses channel can go up or down depending on what's happening in analytics tends to be a slight negative.
Chad Collins: So in these times, the numbers tend to stay pretty consistent underneath the covers. There's a lot of puts and takes, but the retailer part of the world tends to not get hurt at all. In fact, there's a lot of times it improves.
Chad Collins: Got it.
Chad Collins: And then I guess just a longer-term question, when you look over the last several years, how is what you're displacing changing? I would say it has remained fairly consistent over the last several years. Obviously, if you look at the numbers over the last decade, we've clearly moved upstream. We've been very effective at doing that. We continue to displace paper and facts from retailers that aren't automating their supply chains and or suppliers that have not worked with retailers in an automated way.
Chad Collins: So we continue to see that in our enablement campaigns where somebody has not been exposed. Obviously, in today's world, it's significantly easier to start a brand, to start a new supplier company. So we continue to see that. We continue to see people as, especially as they move ERP systems, to move away from legacy software and do it yourself. So that trend continues. So I would say over the last two, three years, not much change over the last decade, clearly moved upstream, which is why one of the reasons why our ERP was increased so dramatically over the last decade. Okay. Yep, make sense.
Chad Collins: I'll leave it there. Thank you.
Mark Schappel: Next question comes from Mark Schappel with Loop Capital Markets. Please go ahead. Hi, thank you for taking my question and Archie, again, congrats on your time with SPS and wishing the best.
Archie Black: It's only if you could start with you if you could provide maybe some additional details around the order exchange in terms of maybe some market areas that they focus on or are very strong in. Like, number of employees, you know, with the profitable things of that nature. Yeah, it's a very small acquisition, about 10 employees, and this company was really built to help and implement SBF Commerce customers starting in Australia. And where their expertise has been is that I would call the long tail or the one off ERP systems where they're integrating to them and have built some expertise there.
Archie Black: So when you look at the deal, it makes a lot of sense for a couple of reasons. One, well, first off, it's very small. But what we found is when we make acquisitions of partners like this, obviously significantly smaller than map a doctor at Data Masons. But we have seen that we end up having a better customer experience and we end up having a little bit more sales momentum. So one of the things that's a little bit unique on the deal is, although it was in other deals as well, is that almost all of their revenue was already flowing through SBF Commerce.
Archie Black: So you're not seeing a pickup on revenue, but now we control the revenue, we control the proprietary information and we can more integrate that into our business. So really excited about the team there and the skill sets.
Mark Schappel: Great. Thanks.
Archie Black: And then you mentioned ERP and just to stand that theme, I was wondering if you just comment on what you're seeing with respect to the ERP implementation side of your business, particularly the supplier community. Go ahead. Yeah, it continues to be, I would say in the small market and mid market, it continues to be very strong in the enterprise. It's a little slower, not substantially, but slightly slower. But people continue to move forward.
Archie Black: There's so many challenges that suppliers and retailers have that they don't, if they don't fix their base, you know, infrastructure, they're just not going to be able to meet the demands of the customer. So that is what's driving it. It's not neat, new technology. It's just they fundamentally are not able to meet the demands of their customer unless they really do some upgrading, which obviously includes some of our products as well. Great. Thank you. That's all. Again, if you have a question, please press star, then one.
Nehal Chokshi: Our next question comes from Nihau Jocksky with Northland Capital Markets. Please go ahead. Oh, yes. Thank you.
Chad Collins: And congratulations Archie on an incredible career. Chad, look forward to working with you. You talked about in your introductory remarks the value of networks, especially for your customers. In the context of the international footprint that SPSC has, what do you think can be done to enhance that value such that it becomes similar to the where it is in the United States? United States. Yeah, I would say that from a customer's view, I think the value is quite similar, frankly, in terms of the value that we're able to provide a customer and connecting with their trading partners and getting access to more data utilizing our network, whether that customer is in the US or Canada, in Europe or in Australia.
Chad Collins: I think sort of as a percentage of our business, obviously it's dominated by North America. And as I mentioned earlier, I do think there's opportunity to expand on the geographic vector. What I would say is some of the transactions and approaches across the network do vary a little bit by geography. And, you know, back to my comments before on Thai. I think, particularly with respect to Europe, it gives us a nice beach head into Europe with that acquisition, especially relative to Europe.
Chad Collins: Thank you very much.
Operator: This concludes our question and answer session.
Archie Black: I would like to turn the conference back over to Archie Black for any closing remarks. Thank you, Dave. Before we end the call, a big thank you to the management team and SPS Commerce customers for their support during my 22 years at the company and to all SPS employees for their on-wavering dedication to our vision. I've truly had the privilege to work with and lead an exceptionally talented group of people and I'm proud that together we build a company that has consistently delivered exceptional results for our customers and shareholders.
Archie Black: And lastly, I would like to also acknowledge Kim Nelson and her commitment to excellence throughout our 60-year partnership, including a successful IPO and 55 earnings reports. In addition to being a fantastic CFO, Kim has been a sought partner, a strategic advisor, and a trusted confinon. I wish Kim, Chad, and the SPS team continued success in the years ahead.
Archie Black: Thank you all for your time today.
Operator: The conference is now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect.