SPSC - Earnings call transcript Q4 2017

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Operator

Good day ladies and gentlemen, and welcome to the SPS Commerce Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for today’s conference, Ms. Irmina Blaszczyk. Ma’am please go ahead.

Irmina Blaszczyk

Liz. you, Thank and Commerce everyone, call. for us joining Good quarter thank and SPS fourth conference full on afternoon, you year XXXX

We more publicly statements we strategy today, expected that will penetration available with the increase statements risk respect other obligation and detailed description make information, our or no customers. and Please our as to statements, filings These and our website, including traction undertake financial forward-looking forward-looking or efforts Form whether and well with of go-to-market may retailers events documents designed are are our to for results, factors results. a certain to refer at new of that involve update the opinions These to differ results a our of cause website, could sec.gov. actual our call, at our this number spscommerce.com, and revise of reflect SEC Please date of these our note, as financial specifically and results that only SEC's result any statements to otherwise. risks as and release affect uncertainties as the forward-looking XX-K future press materially.

a our sheet the historical are easy reference for on In we spscommerce.com. addition, Investor providing of section Relations data website,

our to adjusted disclosures regarding will And During the these I find Archie. non-GAAP with website, with of SEC, earnings measures. discuss call our over our today, and measures and measures, the additional you GAAP reconciliations we is call our filings turn each on EBITDA adjusted comparable will these and EBITDA non-GAAP press with posted including measures financial will per which release share. In of that,

Archie Black

SPS strong a XXXX year of Commerce, market a welcome was undergoing and execution everyone. Irmina transition. significant in Thanks, retail a for

and the year to million. $XX.X grew full million EBITDA $XXX.X revenue XX% adjusted grew to XX%, For

global retail industry a tremendous wallet thousands capabilities. X%, expanded complex environment evolving the to as retail offers XX%. their customers We the the their to the adds retailers themselves. retailers and based shipping and the grocer several successfully as to to changing based educational the offering partners numbers past revenue may XX,XXX to to a today. Boots to compete network SPS retail or now engage of in loyalty subscription to Commerce improve against Mills those customer demands ever line fulfillment comprehensive win and our and German differentiate grew Walgreens have boxes but customer need retail Throughout and the recurring a over we seen grew and conglomerate, capabilities the In programs, e-commerce transition It's imperative recurring largest on and for revenue and XX,XXX account and consumer enable continues for it retailer such enhancing work, for environment. Retailers to quickly involve recreation be have continue giants experience notable new retail customer Lidl, e-commerce in change cloud also communicate world. of customers. to loyalty and with enhance a Fleet adopters learn full share with years, one and the time themselves we to order to repeat to the they able must and speak The platform real of home programs. trading SPS Additionally, compete billion capabilities to the retailers network broad products. efficiencies and webinars grew world include understand and early retail many e-commerce $XXX years, Alliance, for life, adapt XX%, to XXXX, in undergoing unmatched strategies has the partnered In and service businesses we brands deploy offer omni-channel Farm over

have We that X,XXX more customers us annually. pay $XX,XXX than over

our partners. year we're through up with integrating we of us in market, seeing this As business. increase channel And an all sales new customers channel move contributed XX%

in channel drive our strategy. Our leadership position to continues growth

result with added world's the alliances most some we of integrators and PwC. Capgemini global system, systems like have developed retailers a As recently strong value and largest

With SPS largest omni-channel partner network, and retail of capabilities. enabling a be continues the choice world's to strategic robust

our of cost omni-channel demand growing complexity, of trends to now visibility total is retail to for efficiencies solutions data, address the the are to the our the In elevated revenue, which and comprised many and doing time real XXXX, analytics XX% world. These of space year-over-year. As high products. continues collaboration, suite satisfy business evolve fueling are recurring looking of inventory broad in in adoption consumer critical realize X% retailers

As we the of and impacting call, environment consolidations sale bankruptcies last retail changes, the noted on are our analytics.

for since Mills range of our our of ran In consultative which our We beyond activity. expertise. a to XXX,XXX customers SKU’s enablement to needed expansion distribution vendors grew through chain. supply compliance new the continue. fourth XXXX with to EDI by to with rolled diversified size new engaged for traditional to cloud the SPS to requirements that of hundreds with to we develop lead out legacy recently community their SPS our lower construction remained their trend overhaul SPS Mills us product are we years, with which trading SPS and to Farm result, fully EDI and enable despite a product the an retail analytics community onboard onboarded an the the of channels. with their As than demand of Fulfillment with enhancing early our merchandise a Fleet offering XXXX. relationships strong legacy moves their platform double also making fulfillment solution turned ability quickly XXXX, source in their distribution directly is Including began of retailer ensure consult broad summary Commerce. largest categories. and in for Midwest business quickly center generation by the next at a fulfillment all interface an strategic of retailers across types in to six address in customers, XXXX, and for this requirements increasing the campaigns These slower important significant technologies expect center the demonstrate of an XX% new its year-over-year of vendors and In enablement driven upgrade campaign orchestrated quarter, technology enablement partners. plan processes. and allows opening Upper time across for improvements retailing launched their to our generation a to more their to we Mills growth needs web In over strong and

for brick omni-channel e-commerce and and platform drop environment, Our architected complex today's which ship. includes mortar,

we financial us. of XXXX. We have global dollar discuss results. momentum With multi-billion turn it I'll to exiting feel in our in opportunity Kim confident a our over that front And to

Kim Nelson

a growth. X% Thanks a revenue quarter number quarter quarter XXth of quarter. to for year-over-year Revenue revenue Recurring and grew $XX.X Archie. approximately the represented increase great had XX% XX% of our QX over We recurring customers was XX,XXX. increased of fourth year-over-year. total consecutive this revenue million last year The

to approximately QX, share $X,XXX. For increased wallet XX%

to For adjusted million. $X.X XX% the EBITDA quarter, increased

EBITDA Recurring to adapted revenue results For and that set million. ended $XX.X million, SPS revenue Commerce year and executing we targets the We grew with and total its the an a XX% business for million. increase. year, adjusted $XXX in the In grew investments XX% to was cash $XXX.X year, our shareholders. transition, model and new is has continue for ensure industry of XX% delivering

strong to on sales headcount, thrive force organization us the XXX sales position expectations. company long-term aligned We and at the sales for continue retail deliver dynamic we our have our XXXX exited with and to approximately a environment. our to set well believe quota-carrying this of We up year a

for will implemented specifics We longer buyback repurchase program the We shares. periodic traffic a quarterly growth on to strong SPS Going million color no while as we provide long-term, and we forward, $XX of to on delivered may a up provide relevant. headcount basis. investing

XXX, to guidance the ASC follows. is XXX, recognition guidance, by of of now expense years, to Under of will impact new million revenue approximately ASC will reduction revenue as commission impact in XXXX be of XXXX. ASC commissions of will a majority and our adoption XXXX expensed The turning in Under $X resulting financial approximately two $XXX,XXX a in highlight reduced our of over the be Before million would to approximately and reduction $XXX,XXX. like and results $X show revenue the standard, approximately XXX. XXXX I

the As year prior in approximately approximately versus a accounting result, $X.X by in adjusted EBITDA standard. XXXX XXXX $XXX,XXX million increases and

more our these reflects to on years prior also guidance you our will There our on XX-K financial information data the filing. impact changes, provided in Our see website. can sheet be and

Now turning to guidance.

to $XX.X XXXX, be of For in range to the of million expect we the revenue $XX.X quarter first million.

million year, full representing to expect of be to revenue million, the XXXX. the over XX% XX% range to growth For $XXX in we $XXX

expect the to EBITDA For the be million $X.X XXXX, first we quarter adjusted in range $XX to million. of of

the range we adjusted to to XXX, impact been representing the have year-over-year XX% growth. growth EBITDA note to to $XX that be full like the of XX%. For We'd XX% of in our without would XX% expect year, $XX.X year-over-year million, million AOC adjusted to EBITDA

diluted outstanding fully we to For fully weighted approximately shares. shares diluted per $X.XX be XX.X with XXXX, earnings QX million to share expect $X.XX of average

amortization approximately depreciation stock-based compensation diluted expense approximately $X.XX per million, non-GAAP earnings million with and $X.X to of approximately expense of approximately million. share expect be $X.X We $X.XX of to expense $X.X

XXXX, For of year to per in $X.XX. fully earnings the be expect range $X.XX full to the we diluted share

shares million We expect fully diluted weighted of XX.X shares. approximately outstanding average

be with of expense We compensation million. $X.XX per expect in $X.XX stock-based non-GAAP of share earnings approximately to the diluted to $XX.X range

year approximately We $X.X and expect for be $X.X million, depreciation expense expect the expense million. amortization of we approximately to

net calculated you year, tax effective the should earnings. approximately GAAP model on XX% pretax rate For

cash NOLs. pay to due our We expect to nominal in taxes XXXX

the reach factoring to current XXs. we and dynamics, addition low a the guidance, at percentage of EBITDA goal, and XXXX least XXXX margin EBITDA long-term million industry introducing goal are to adjusted in expect Specific to an XXXX target $XX adjusted the we In model. updated in

run excess We XXXX. million rate of in $XXX comfortably exiting expect revenue a

the adjusted that, delivered target open well of to see is growth margin to future. believe to its revenue strong we XXXX call expect we and with in summary, XXXX, SPS a model expansion market positioned with like adjusted as for EBITDA expand We In Beyond And XX%. we questions. to to the continued I'd leadership. EBITDA invest margin long-term continue for

Operator

question with [Operator comes first Ikeda Instructions] Oppenheimer. the line of from Our Koji

Your now line open. is

Koji Ikeda

Hi, thanks the and questions my on taking for congrats quarter.

guess, seems sentiment. it right retail to direction. the here, a place XXXX, be industry, level I in recent high is environment good chats especially with – the spending into and consumer recent the holiday the to real Everything in our really trending better like spending sounds retail trending Just technology

was thoughts wondering on with I you current share of if So high-level could your of the retail. some state us

Archie Black

Yes.

year better full grew XXXX the numbers seen and to haven't we that than – – guess yet, were from e-commerce overall back but the it's XXXX about think than full brick-and-mortar going my And be look continues you slightly XX% overbuilt. when range. but X% be is significant that not for Retail to more think I numbers I year. grew

to closings I of part store continue partly just it's a think been see but overbuilt XX big the we're because years. because going last to e-commerce for

a enablement But see think on we're change complete So in going in to going continue don't see I not did revenue to in drop-ship campaign little bankruptcies. a did to some – think in volume our environment, additional just transaction that I And QX and to then we're see that strength see huge so it's think continue overall we're QX, from in – turnaround was that our QX. strong. the a counting created I some activity that. mostly extra we We

continues we're to going transition. it in industry to see store be to continue I closings, think an and

Koji Ikeda

all of Thanks and And it. my for maybe to if playing the about starts question for to the consolidate Archie. forward? the of right down. Got of the get it's the that what's bankruptcies value is way supplier how I going analytics the But retailer proposition on thinking story that? if analytics stores, for guess, And and the impacts potential completely or I analytics products shuts retailer any moving forward, effect that is effect and Kim, either the analytics next to And Archie to the here.

Archie Black

very perfecting – from off, is if standpoint, it have does first overall retailers our with It in think mission we for fits package of both and we extremely nicely part for portfolio. product of important analytics an vision And and So you our step suite take the sales help [indiscernible]. a back, an entire suppliers. a as

of matter do I important just store So closings met do we and believe not think it's I a think the long-term don't it's an people's in part, priorities. where we It's very matter. more with in the TAM. to to data. engaged But analytics. and and the want are can if do so they the data yesterday, go much and share far with only point-of-sale retailers that going supplier a suppliers aren't the falling

believe move to I or incredibly retailers an large long-term priority still But that next the to of for total addressable I over So the the see think two. list we're don't there's that market. year going top

Koji Ikeda

Congrats returning post to that Super hopefully back on it, the over quarter life Got for and there is Archie. Bowl. thanks normal good

Archie Black

It is. It’s and damp. normal. cold That’s

Koji Ikeda

guys. Thanks

Operator

Our next Canaccord. line the comes with question from David Hynes of

Your line is now open.

David Hynes

little guys. ask you customer two bit. the Archie, thanks add to a I questions Hey, want on touched this front. on

to QX of the seasonality, customer the stronger I kind year. I normally the adds, in unusual guess, of we guess, Some than start relative see,

of happen your reacceleration what needs level, kind So view the count? on any growth customer color see higher there? a And to to then in

Archie Black

customer enablement activity. tend most really part, deal. size. in channel will slightly to count, larger for to XX growth be is revenue. stated as past, around sales deal or But the than Well, size X average channel we our larger And drive is the the sales Typical

the customer but relative will it The enablement activity. activity what saw We a for be customer lower relatively strong count. enablement activity count. especially QXs' stronger So revenue QX, drives most to is

David Hynes

Yes, okay.

ask then. me Let

feel kind low-XXs, this new towards much of the number, like the you as we what of this to different back norm? the the growth, mark. out there. approach, little still XX% million the right, that than back better the can I'm grower to front, bit gets from got XX%, And XXXX, still on business should feel do a longest we But $XXX for growth Or guiding it to Obviously, XX% to high-teens. were be to kind margin but getting you revenue XXXX should the So that can applying saying a reaccelerate? I mean, you're margins expansion SPS there of you expectation – targets of trend does it kind the you time, getting not get XX%? talking about like faster is think new get

Archie Black

the need of And obviously, large addressable normalization accelerate, And obviously believe think, total we of need campaigns, incredibly an in so we to things think there's acceleration to activity prioritization a we there. for I I some enablement see analytics. market. higher on an

David Hynes

Yes.

Archie Black

watch. two the we're are those going that So things to

David Hynes

Yes.

pass line. Okay, fair the enough. Thanks guys. I will

Operator

Roderick Our next question comes with from the line Stifel. of Tom

now Your line open. is

Tom Roderick

the Hey, question. Kim, Archie, hi, for taking thanks

looks ask you gold just me a maybe not now in differently you, XX%, if XXXX Korea this even where talk little guys kind at in be and this you up not if you a bit higher a more, mean, to above consistent we XX%, more are at between of a model quarter, the about require seeing little talked close exaggeration. above leverage profitability year? I Let looking this to that. Kim, EBITDA about growth had question that's that a the going least be and you're what just sort last little telling of Could growth, would at trade-off to year [ph]

here leverage in seems as marketing of Does that So like between additional continue expecting levers adding levers the of trade-off At talk been resources? and in XXXX. come expense that additional it you're at about as have are the kind finding profitability plan you we growth the least Thanks. it? had sales Or model. to

Kim Nelson

Sure.

about So our XX%. XXXX, guidance at When dollar EBITDA you growth is when look XX%. XXXX, to our growth for at we EBITDA XX% was look

XXXX. really, margin our to of demonstrate expansion we that some ability in So show

similar so expect margin relates expansion. as in XXXX, implied And it really, the you'd to

us. marketing over of areas, our that to the of think exception with time, We the gross opportunities for of the question puts efficiencies We R&D. believe as XXXX. sales couple relates headcount. really XX% position in time, makes well on and have a comes your XXX over great in things. of for and most we we XX% it a with that We what XXXX expectations for a G&A. there's sales think revenue, about marketing to to relative improvement margin, where we and to in of opportunities quota-carrying exited As percent as sales believe from, to that sort are But that Specific as us sense side,

about to so the see there model you'll then line you our we we'll efficiencies and the sales think in add or prior exiting XXXX many don't as in see So to add years. as so, optimization we continue should marketing going as translated more of of that more that opportunities is way out XXXX. marketing we're good there's had need force sales point here do to that we've really a in to to see sales and sort efficiencies adding you're itself in to Therefore, and be but

Tom Roderick

force putting a Yes, that remember and gains you've you. more of Last the for in a to and high-end sales after want direction go had efficiency up year, of year on great. you little seen move now following about maybe more you talking concept high-end feedback in. add your that's about guys that you of going if place, that what the bit. a I Curious think by to upstream market Thank continuing And you've talking the effectively efficiency. about sales reps to

Archie Black

we I extremely had I mean, – committed, of think think there's a organization. things the a year have are and sales number a strong the driving I believe force. force Well, reorganization that sales really Obviously, sales I ago, we about

existing our up customer customer and selling the assisting or But driving seasoned the and more success stepped in sales reps. our last sales year force customers. two to more behavior really importantly, We is have team over has

doing taking to allows off think efficient. a force, burden job be them the of sales team which of I is our great more operations sales

to force they of sales the are proving number work do a existing new that our out after done we've and go to and think base. things with allow best do I So install what prospects

Tom Roderick

Thanks, Archie. Thanks, great. That’s Kim.

Operator

from question the Walravens Our of Securities. with Pat JMP line next comes

is line Your now open.

Pat Walravens

Great, thank long-term targets, the you you. really I for And like thank that.

three is than So say, big four different today or years it ago? market picture, was, Archie, how the years

Archie Black

felt opportunity – disruption. lot if was of the retailers when and I there they was to threat think want three to and was think had I or ago, omnichannel less back We a Well, I a years e-commerce an tailwinds, trend more trend look of there years people. four stock, – add than

I think overbuilding as in behavior or up there’s is them. priorities. of as far get they more burner more And XX the on the years, so retailers need over the the to catching last There’s with there. three last from of years four Obviously, the large e-commerce, back disruption analytics completely is very much game, priorities.

getting actually truly and omni-channel the an business. I engaged into think retailers are building more game of

Pat Walravens

your good. sort from a Okay, if ask sales of not then double – do the ago, you look if sure your would is booking? you years sales you the double today, force, you that And from four to doubled of sales – – right at three then if sort view, of force, your or point you productivity and this bookings? but a And double way quite

Archie Black

areas there’s think the grow I sales to force. continue we can where

I think to you think, careful, analytics. there’s I need be like areas where

of – a sales. you more it’s they’re think not it will – matter headcount give more I just just

and set sales entire Dan think organization done last added you think the well really continue sell and more. and but Juckniess you term. areas if just XX capacity be long that as the months has I up for I add it’s things that straightforward more, you’d that that not there’s standpoint the But embraced us we’ll to we’ll knew selective, a over from

Pat Walravens

from on basis? we from And we disclosed that revenue unit to the for does to churn then Great. – where and a survey Kim guys that one Where a are how on And basis extent then it, are compare you you. historical?

Kim Nelson

Sure.

And it’s churn, quarter. is numbers is as customer about we’re churn not quarter half that’s annual at X%. obviously. at a same well. from an number, same of last numbers, annual that dollar we are we what Those just saw quarterly were last just XX% So that, about as And

Pat Walravens

does of couple years? couple a back of or it look years, changed you if it last compare not? And the Or has to how Yes.

Kim Nelson

Sure, the it’s last X%. about by changed –

went X%. used dollar to be So if customer about churn you churn to around back, the used and be the XX%

uptick So we’ve slight a both metrics. those of X% of seen about on

Pat Walravens

Thank guys. Okay. you,

Operator

line Markets. the next Our Monika KeyBanc Capital comes Garg question of from with

now is line Your open.

Jason Celino

for This the my of taking on around guys. kind question. question Hey, is one And Jason Monika. environment. Thanks

as are that of investments? of far reform. savings of beneficiaries some reinvesting see technology those back into tax we hearing kind So retailers have And biggest them been kind you what the of as from

Archie Black

Yes.

think I full. minds. think I but in feedback, lot a fresh I their their had haven’t it’s fairly plates of are

has restraint capital much a think restraint. some lot been just how for been, think time. a they I in the do is of the cases, I retailers But can at

Jason Celino

Okay.

and last into this You’ve this of kind year year. talked about coming

seeing making Some Are big technology Or are that of we Where comments on still that? see these changes. Or retailers of trend? to any kind are you are in cycle? that of slow? these starting transformational it kind you

Archie Black

still pipe We retailer through retailer. that either not see transformation retailer. all it’s They’re to that’s or the that – retailer continue omni-channel embrace to more going and But they they’re survive. I there’s be are large I strategy time. And think realizing be as think an by trend. more going one going to retailers Obviously, not at by a

Jason Celino

all from That’s Thank Great. me. Okay. you.

Operator

line Our comes Klasell the Northland of Tim next question Securities. with from

is now line open. Your

Tyler Wood

Wood One quick Tyler is this offering. one Tim. the on Yes, fulfillment on

color this on XXXX? your Could mentioned, some XX% that we side product you. business rolled give think, of and year as You into there you I us Thank that expectations nitrogen the growth out. you for just head

Kim Nelson

what as we are. overall guidance expectations our relates for XXXX, So it to provided

fulfillment the we that stated expect a also we’ve at rate that grow to relative do slower analytics growth. will the However, to continue

Tyler Wood

you. Thank

Operator

from next Analysis. First with David of line question Gearhart Our the comes

is open. line now Your

David Gearhart

Thank my good questions. afternoon. for you Hi, taking

marks, accelerated for and running you recap is basis, remarks for to prepared of community due Farm mentioned the and in additions just Mills I on QX. that you Just know program bulk I’m enablement your QX. the based to Mills net on assuming, nice little it’s your the jump additions on strong in to Farm? a it How quarter. much an a trying of saw net the do

Archie Black

to No, I What nice do think highlight two. or program. earnings is tried an call Mills Fleet we a Farm customer was a

it few several that. a program it and was that that So a of was drove nice – one

it just program. deeper So was than one

Kim Nelson

And saw in bit growth and also the Those that campaign. rate, versus higher you community in it’s QX to a customer so quantity went with the sequential the X%. being up it highly – the are correlated of enablement adds X%

the of made one quarter, earlier we is quarter. the did in campaigns. Archie had enablement of comments community a our see the latter So part that in our They part few coming for which more the reasons in, of up ended the exceeding was of

Tyler Wood

visibility that mentioned terms programs, know you on that imply be enablement Any to community to in And has continue been expect you change – I I it that light. think light? that given from it your view guidance of before would it that.

Just to enablement ask community just again it to side. the on want

Kim Nelson

Sure.

do there’s to expect of more see undergoing retail market. to on for happen where within their transition. And enablement those campaigns through timing help us that, and them when those still It’s community the campaigns, retailers dictated are retailers the but significant continue see opportunities the as we So really journey. are to

XXXX the – still of this XXXX, retailers lot for into commentary a expect we again, are in and beyond. said So on we journey

Tyler Wood

around talk you’re it’s me, for one on the what just of international dynamics last And we’ve traction a while there since seeing. and wonder the you got kind been could update front an Okay. if and

Archie Black

Yes.

global an ecosystem in traction had obviously traction That’s nice into we’ve there. the But business, we’ve entire concept. international Australia, built see nice Australia. whole in Our

overall really growth standpoint. growing chain, a we more in at that the to to more actually our continue be – slower in It’s growth. the business chain linked but may again, to Asia Asian Our support then and – we analytics been business, in America that slower, operations. more is have Europe which, supply our on a linked has of component continues to thousands of that’s see pace supply And fulfillment customers Asia North through

Tyler Wood

for the for it Thanks color. me. Okay. That’s

Operator

[Operator program, have Instructions] time. may concludes further at This a thank Ladies your and in you in question-and-answer I’m questions conference. this day. for today’s Everyone, showing That no great disconnect. gentlemen, the today’s queue concludes and you participation now session.

SPS Commerce (SPSC) 6 Feb 182017 Q4 Earnings call transcript