Q1 2024 SPS Commerce Inc Earnings Call
Good day and welcome to the Sps Commerce first quarter 'twenty 'twenty four earnings conference call.
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Speaker Change: Now I'd like to turn the conference over to Armina blast Chen Investor Relations for Sps Commerce. Please go ahead.
Speaker Change: Thank you drew good afternoon, everyone.
Armina Chen: And thank you for joining us on Sps first quarter 2024 conference call.
Armina Chen: These statements are forward looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please.
Armina Chen: 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.
Speaker Change: Please refer to our SEC filings, specifically, our Form 10-K, as well as our financial results press release frame more detailed description of the risk factors that may affect our results.
Speaker Change: These documents are available on our website Sps commerce dot com and at the Sec's website at SEC Gov.
Speaker Change: In addition, we are providing a historical data sheet for easy reference on our Investor Relations section of our website Sps Commerce Dot com.
Speaker Change: 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.
Speaker Change: And with that I will turn the call over to Chad.
Chad: Thanks, Jeremy and good afternoon, everyone. Thank you for joining US today, we delivered a strong start to the year first quarter revenue grew 19% to $149 6 million.
Chad: Recurring revenue also grew 19%.
Chad: As a leader in supply chain cloud services, we are capitalizing on the ongoing investments in automation. According to the 2023 Emmy Jai annual report of over 1000 supply chain and manufacturing leaders, 74% plan to invest in supply chain technology and innovation with 90%.
Chad: Planning to spend over $1 million, an increase of 24% over last year to improve supply chain resiliency and sustainability and transparency.
Chad: With an ongoing focus on automation across retail Sps is leveraging our strong channel partnerships with technology leaders such as Accu medica, ensuring we are at the forefront of emerging trends from the blurring lines in retail to sustainability as Omnichannel dynamics increase the complexity of fulfillment processes.
Chad: Underscoring the value of such a collaboration Sps was recently honored with the ISP partner of the year Award for distribution at the <unk> Summit Sps offers deep integration expertise to help our customers increase the effectiveness of their ERP system and enable instant connection.
Chad: The trading partners.
Chad: As we continue to grow our network, we remain committed to excellent customer experience. We recently acquired <unk> business won integration technology from vision 33, and expert in evi system automation and expanding our leadership in full service Evi. This acquisition deepens, our expertise and experience in this.
Chad: Phase and broadens our access within the S&P ecosystem.
Chad: The investments we make in our business and our solutions are key to our customer acquisition success and longstanding partnerships.
Chad: With evolving retail dynamics collaboration between trading partners is crucial Sps is proud to have many decades long relationships with customers across the retail ecosystem. For example, select brands a third generation family business designs and produces small kitchen appliances.
Chad: Offering a diverse brand portfolio and our global presence selling products through a variety of channels, including big box retailers online retailers and direct to consumer the.
Chad: The company's success translated into rapid growth and increasing order volumes, which drove the need for automation.
Chad: Select brands upgraded its ERP by migrating to Oracle Netsuite bolstering this infrastructure for scalability.
Chad: Leveraging the net suite partnership with Sps the company automated fulfillment solution, which enhanced order processing with retailers and simplified collaboration with third party logistics providers now a customer for 14 years select brands worked with Sps to connect with 40 retail customers and three pls.
Chad: To fully automate the order to cash process. This.
Chad: This partnership truly exemplifies the benefits Sps customers receive through our network model and commitment to last mile ERP integration technology.
Chad: Canadian tire the number one retail brand in Canada engaged with Sps in 2001, driven by the need to support various omnichannel fulfillment models across their network as Canadian tire grew through acquisitions, maintaining the agility and flexibility and vendor relationships was paramount and vendor onboarding for all <unk>.
Chad: They've acquired retailers was outsourced to Sps.
Chad: Throughout this long standing relationship spss role evolved from technology vendor to a strategic partner delivering valuable insights that support a order planning and distribution efforts across Canadian tires network with more than 20 years in partnerships supporting the significant growth trajectory Canadian tire trusts sps's.
Chad: Retail expertise to help them make the right decisions as they strive for supply chain resilience among them all being market demands.
Chad: G N C a leading health and wellness brand maintains a vast retail presence strong wholesale partnerships and our growing digital footprint operating as both a retailer and supplier GNC partnered with Sps to automate data exchange across their entire supply chain improving collaboration.
Chad: Asian with over 1000 vendors in more than 30 retailers and grocers. In addition, sharing point of sale data enabled GNC and its vendors to optimize inventory management and sales strategies to.
Chad: To summarize Sps is vast networks retail expertise and unique go to market strategy, our significant competitive differentiators the ongoing investments in supply chain management underscore our conviction in the growth opportunity ahead of us as we continue to execute on our mission to be the worlds.
Chad: Retail network with that I'll turn it over to Kim to discuss our financial results.
Kim: We had a great first quarter of 2024 revenue was $149 $6 million, a 19% increase over Q1 of last year and represented a 93rd consecutive quarter of revenue growth.
Kim: Revenue also grew 19% year over year.
Kim: Total number of recurring revenue customers increased 5% year over year to approximately 44800 and wallet share increased 13% to approximately 12000 for <unk>.
Kim: During the quarter, we executed a large scale enablement campaign with a strategic retailer that rolled out a new requirement to all of their vendors. Hence a large majority of both vendors are already existing Sps customers and number of recurring revenue customers was flat sequentially at the campaign contributed to solid growth in a while.
Kim: And while its here.
Kim: For the quarter adjusted EBITA grew 20% to $44.4 million compared to 37 million in Q1 of last year.
Kim: We ended the quarter with Paul cash and investments of $291 million and repurchased approximately $20 million the best P. S shares.
Speaker Change: Now turning to guidance.
Kim: In the second quarter of 2024, we expect revenue to be in the range of $159 million to $151 7 million, which represents approximately 16% year over year while.
Kim: We expect adjusted EBITDA to be in the range of $43 4 million to $44 $1 million, we expect fully diluted earnings per share to be in the range of 45 to 40 success with fully diluted weighted average shares outstanding of approximately $37 9 million shares we expect non-GAAP diluted income per share to be in the range of 75 to 76 cents.
Kim: With stock based compensation expense of approximately $11 $7 million depreciation expense of approximately $4 7 million and amortization expense of approximately $4 $6 million.
Kim: For the full year 2024, we expect revenue to be in the range of $619 $9 million to $621 $9 million, representing approximately 15% to 16% growth over 2023, we expect adjusted EBITDA to be in the range of $185 1 million to $186 $7 million.
Kim: Representing growth of approximately 17% to 18%.
Kim: We expect fully diluted earnings per share to be in the range of $1 99 to $2 and cheese, that's with fully diluted weighted average shares outstanding of approximately $37 9 million shares we expect non-GAAP diluted income per share to be in the range of $3 28 at $3 and 32 with stock based compensation expense of approximately 56.
Kim: $1 million depreciation expense of approximately $19 5 million and amortization expense for the year of approximately $18 $1 million.
Kim: 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.
Kim: Beyond 2024, and we maintain our annual revenue growth expectation of 15% or greater as we expand our network through community enablement campaigns and acquisitions. We continue to expect adjusted EBIT dollar growth of 15% to 25% as we invest in the business to support current and future growth.
Kim: And the long term, we maintain our target model for adjusted EBITDA margin of 35%.
Kim: In summary, we delivered a strong start to the year and the 93rd consecutive quarter of revenue growth as we capitalize on ongoing opportunities across our addressable markets. We continue to invest in our solutions and customer experience to strengthen our competitive position across the largest network of trading partners and our retail supply chain.
Speaker Change: With that I'd like to open the call to questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Kim: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Kim: At this time, we will pause momentarily to assemble our roster.
Kim: The first question comes from Scott Berg with Needham. Please go ahead.
Scott Berg: Hi, Joe and Jim Congrats on a good quarter and thanks for taking my question.
Scott Berg: I guess I got a couple here first of all Ken can you talk about the contribution for revision 33 in terms of your for your guidance. Both in terms of the top line impact and maybe a margin impact.
Ken: Sure. So as it relates to vision thirty-three they were already a partner of ours. So theres really no change that youre going to see on the financials in the year, meaning we were already a billing and invoicing our customers and then our vision thirty-three behind was actually servicing those customers. So no change.
Kim: <unk> really anticipated in our financial in 'twenty 'twenty four and it was a nominal acquisition a few million dollars purchase price.
Speaker Change: Got it helpful and then.
Speaker Change: You mentioned the large enablement campaign your business has kind of ebbed and flowed in any given quarter historically between maybe customer adds and growing wallet share. So you can play out many times.
Speaker Change: But in this quarter you talked about the large customer that already had a large retailer most of their customers you're enabling more already on your platform was this purely a just these customers adding more connections, adding this extra retailer has a connection or was there an opportunity to cross sell I don't know something like your analytics platforms try to understand maybe what.
Kim: They were buying through this largely because of Japan.
Speaker Change: Yes, Scott. This is a great example of a reach.
Kim: Our retailers really expanding the scope of supply chain data that they exchanged across our network, which then we're able to monetize and so in this case this a large retailer.
Kim: Was implementing what's called the advanced shipment notice, which is supply chain message that gives them visibility to inbound inventory.
Kim: Not only they get that visibility it really streamlines things in their distribution centers, then because they know what's coming at them and so we were able to roll out that new program.
Kim: With all of our vendors and because we've had such a historic success with this particular customer.
Kim: We were already highly penetrated for other supply chain information within this customer. So we found a lot of existing subscribing customers as we ran.
Kim: This campaign, but to me. It's a great example of a expanding the use of the network for more supply chain data and B, how when we are deep in and a customer we see that higher penetration of our subscribing Sps customers based on that long standing relationship with that particular retailer.
Speaker Change: Got it helpful and I apologize the slide one last one in here I think is a natural question you all and myself will get certainly tomorrow.
Speaker Change: Customer adds that were you know a customer kind of understood. It was flat quarter over quarter, implying no new net adds.
Kim: And yet you're focused on this large enablement campaign, but how should we think about the net new customer acquisition environment, because I assume it.
Kim: Your focus on here is not representative of market, that's probably still reasonably healthy.
Kim: Yeah, I would just say that because we were running this large enablement program and it was quite substantial proportion to say our average enablement program and it's it's skewed toward these existing customers.
Kim: That's why you didn't see the sequential growth in customers buying has shown up in wallet share I'd say this is no indication of overall.
Kim: What we expect to see going forward.
Kim: It's just this particular program was pretty dominant in this particular quarter.
Speaker Change: Got it. Thank you helpful. Congratulations.
Kim: The next question comes from Parker Lane with Stifel. Please go ahead.
Jeffrey Parker Lane: Yeah, Hi, Thanks for taking the questions here, Jim you acquired a few businesses over the last couple of years I'm wondering when we look at this wallet share strength over the last couple of quarters here. If you could help us understand how much of that is coming from.
Jeffrey Parker Lane: Wallet share growth in those acquired businesses getting them on your network and establishing more connections.
Jeffrey Parker Lane: What I guess, we could call organic customers is there a way to distinguish between the wallet share growth rates between those two cohorts or is it roughly similar.
Jim: Sure. So if we think about some of the acquisitions that we've made more recently.
Jim: That really hasn't had a major change in the wallet share per saw what I would characterize is just if you think about our business model that just in general.
Jeffrey Parker Lane: As we acquire customers over time organically inorganically.
Jeffrey Parker Lane: Hula buys, but as you acquire customers over time.
Jeffrey Parker Lane: We get more revenue from those customers in future years as their business grows and they connect to more and more retailers. So that's sort of network effect that is alive and well within our business model I would say that's really a a driver to why our wallet share over time, just continues to grow on a year over year basis.
Jeffrey Parker Lane: The only thing a little more unique specific in this quarter with the comments that Chad talked about as it related to that large enablement campaign that skewed more to existing versus new customers.
Speaker Change: Got it that makes sense one for you.
Speaker Change: Outlined a few different data points that suggest that it can be poised for years of continued investment in your end markets I'm wondering with some of the competing priorities youre seeing are out there are other vendors other.
Speaker Change: <unk>.
Speaker Change: Or are up for grabs versus.
Jeffrey Parker Lane: Sps.
Jeffrey Parker Lane: Expanding further in these end markets.
Speaker Change: Yeah, I mean, I think overall, especially with the major dynamics the disruptions we saw in the pandemic, which sort of heightened.
Speaker Change: The focus on supply chain, and we see that continuing combined with just the ever.
Jeffrey Parker Lane: Kind of changing and demanding consumer expectations on retailers in the retail supply chain around Omnichannel commerce.
Jeffrey Parker Lane: There were believed there will be continued technology investment in supply chain as it relates to other different options that people have when they invest in those technologies are we tend to be quite complementary.
Jeffrey Parker Lane: So other technologies, so if there's an.
Jeffrey Parker Lane: Limitation of a new ERP system or supply chain applications are often tied to those programs is a big focus on the data that's going to be used in those programs and because we're really able to help organizations improve the data and accuracy by helping them collaborate with their supply chain partners.
Jeffrey Parker Lane: It can be a benefit to us when theyre doing other types of.
Jeffrey Parker Lane: Supply chain application implementations.
Speaker Change: Understood I appreciate the feedback thank you Ken.
Jeffrey Parker Lane: The next question comes from Dylan Becker with William Blair. Please go ahead.
Dylan Becker: Hey, guys I. Appreciate you taking the question maybe you wanted to kind of dig into the data approach as well.
Dylan Becker: How that relates to kind of the platform expansion opportunity.
Dylan Becker: As that continues to compound Chad how do you think about the potential to address additional stakeholders here kind of drive deeper layers of automation across the supply chain and how that unlocks further wallet share momentum by additional potential monetization areas that makes sense.
Chad: Yeah. It does make sense and I think it just points really to the power of the network.
Jeffrey Parker Lane: It's been built over time here and the ability for that network to exchange increasing amounts of supply chain data for our customers and even this enablement program. We did this quarter.
Jeffrey Parker Lane: Expanding might be ASN document for this particular retailers in yet another great example of that so I think the network itself from a technology standpoint, the vast amount of participants that we've been able to add to that network are both growth drivers and overtime I would expect that we would find more and more supply.
Jeffrey Parker Lane: Data now, we're able to exchange across that network.
Speaker Change: Okay, Great and then maybe just like a function of that as well too on the analytics front.
Jeffrey Parker Lane: How should we think about again I know we've talked about in the past that being a function of kind of retailer willingness and how that ranks to your prior point on kind of prioritization of investments is that something that has to have kind of greater point of sale adoption first before that can happen does one have to lead the other can they continue to be supplementary.
Jeffrey Parker Lane: Complementary.
Jeffrey Parker Lane: As you look to kind of accelerate value there as well thanks.
Jeffrey Parker Lane: Yeah.
Jeffrey Parker Lane: The analytics product is really getting into this deeper collaboration between the buying organization that retailer.
Jeffrey Parker Lane: And their vendor community and the ways that they can streamline the overall supply chain by having access to that point of sale.
Jeffrey Parker Lane: To help them further collaborate I think the data itself is what's important there.
Jeffrey Parker Lane: The point of sale technology itself, we don't really see us as a barrier and it's more about driving that.
Jeffrey Parker Lane: Deeper collaboration.
Jeffrey Parker Lane: Willingness to share the data between the retailers and the suppliers.
Speaker Change: Great. Thanks, Ken.
Speaker Change: The next question.
Speaker Change: Western comes from George Cortisol with Citi. Please go ahead.
George Michael Kurosawa: Hi, Thanks for taking the question and congrats on a good quarter I wanted to ask about kind of follow up on tight kinetics, you know I think you've framed it as you know building a beachhead of customers in Europe, you're going to do some learning in that market for you kind of invest in the <unk>.
George Michael Kurosawa: Go to market resources, there. So just love to hear kind of how you guys are thinking about the European market opportunity today.
George Michael Kurosawa: Yeah.
Speaker Change: I think you summarized our our approach here in the first year of owning time very well.
George Michael Kurosawa: Does give us a beachhead for our fulfillment business. We have is we have had a sales force for analytics product in Europe for several years, but time really gives us that beachhead for the fulfillment market and as we work through our post merger integration.
George Michael Kurosawa: It really is a benefit to be actively participating in Europe with existing customers. So that we can learn from being in deals understanding the competitive landscapes and also understanding.
George Michael Kurosawa: Any sort of unique requirements that are specific to Europe, and the European landscape, all which will influence our longer term thinking about go to market strategy for Europe.
Speaker Change: Got it and then just one follow up on this large enablement campaign you called out.
Speaker Change: And it sounds like layering on a new type of communication, rather than let's say, an add on product or or new net new connections. You know is that a kind of expansion.
Speaker Change: Expansion motion that you think is maybe repeatable with some of your other retailer basis.
Speaker Change: Yes.
Speaker Change: It is certainly part of our business model I mean, we certainly are expanding customers to the network. We're also constantly expanding the number of connections.
Speaker Change: That those customers make on the network and we're also striving to expand the scope of supply chain information that they go across that network. So you know all of those things are our growth levers for us.
Speaker Change: And I think this particular.
Speaker Change: Enablement program.
Speaker Change: Was was large and demonstrates how that expanded data.
Speaker Change: And type of data across the network can really benefit our customers.
Speaker Change: Great. Thanks for taking the questions.
Speaker Change: The next question comes from Joe <unk> with Baird. Please go ahead.
Joe: Great Hi, everyone.
Joe: Just on the quarter itself can you maybe talk about some of the drivers of upside just relative to your original guidance I would imagine the enablement campaign, just given the size that was probably.
Joe: None contributor out of the gates that quarterly revenue beat you put up this quarter. It is a bit more than usual. So I'm, just hoping to dig into the contributors there and then just going back to tie it was better contribution from Ty are part of the upside.
Speaker Change: Sure I sure go sell our overall feel really good.
Joe: Strong solid business performance overall U a E.
Joe: That did drive part of the beat relative to what the expectations were where you would see that come through is an a one time revenue up and testing as well as in the wallet share as it relates to the existing customers adding.
Joe: As it relates to pie.
Joe: That's performed.
Joe: Very close in line with what our expectations were.
Speaker Change: Okay great.
Speaker Change: I suppose that's a good problem to have when you operate the biggest network and so retailers come to you for these campaigns, but it has been the case a few quarters now and in recent history, where the ads have slowed.
Speaker Change: Just wondering is there a certain point where that starts to impact the growth algorithm in the sense that the.
Joe: The landing new customers theyre not around a year from now subsequently growing connections and so the wallet share contribution starts to moderate a bit.
Speaker Change: So what I would say the beauty of our MA model. Our network is the fact that theres multiple ways in which we attract new customers and theres multiple ways in which we drive additional revenue from those customers. So we'll just take each of those buckets. If we think about community in general community drives additional costs.
Speaker Change: <unk> is usually smaller sized customers onto our platform and I'm torn network, we talked about some of the differences of this large one let's just put that aside for a moment and just say in general.
Speaker Change: So we tend to see with community and nothing is different with our expectations for later this year as well as in the future and the opportunity we see there and the general mix of how those come in typically nothing has changed I wouldn't argue there we all sell through I cannot fail, that's a great way for us to get some of our larger customers usually when they were made.
Speaker Change: An ERP change as an example in that case, it will impact the customer count, but on a much smaller amount and it will have more of an impact on that wallet share because they happened to be larger customers at the time being offered class bolus plus traditional set of marketing campaigns are great ways that get us new customers.
Speaker Change: Then what we've seen is once we have those customers over time, they tend to increase their revenue with us or our wallet share with them are based.
Speaker Change: Based on connections and how they're using us.
Speaker Change: That can be existing products using us for more trading partners it can be and.
Speaker Change: More documents more activity falling through on the fulfillment it could be additional products services and offering so long winded way to say with and our network. All of those are contributors to our overall growth and then in some cases that will translate into more customer growth and some cases that will translate into.
Speaker Change: More wallet share, but the combination of all of that and because there's so many different components gives us that conviction and that confidence in being able to grow at that 15% or greater for the foreseeable future.
Speaker Change: Okay that was a great answer thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question comes from Mark Chapell with loop capital. Please go ahead.
Mark William Schappel: Alright, Thank you for taking my question.
Mark William Schappel: In your prepared remarks, you highlighted the ongoing investments that organizations are making in supply chain management and today. The company is very strong and Adi specifically in retail, but it's kind of a relatively small part of the overall supply chain software spend I was just wondering if you could just talk about some of the.
Mark William Schappel: Potential natural product Adjacencies that the company could get into to maybe capture a larger part of that spend.
Mark William Schappel: Sure.
Mark William Schappel: I will say that I think the current execution against the business model, we have and the products, we have and the continued growth of the opportunity for all the various growth drivers in our business that Kim just mentioned is.
Mark William Schappel: There's a tremendous tremendous opportunity I do I would say maybe over more of the mid to long term that there's potential areas where.
Speaker Change: We're already involved in our customers business process in terms of collaborating with their trading partners and fulfilling the orders where there may be technologies that we could buy or partner or build ourselves.
Speaker Change: That would be complementary and helpful for our customers. Some examples could be around.
Speaker Change: The shipping process the transportation our customers are involved in other other types of information other than the purchase order exchange process around supply chain documents that we do with our customers all of which would be examples of further areas of supply chain, where our network and our <unk>.
Speaker Change: Go to market approach.
Speaker Change: It could be helpful for our customers.
Speaker Change: Great. Thank you that's helpful. Thanks.
Speaker Change: I'm showing no further questions in the queue.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].