SPSC - Earnings call transcript Q2 2019

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Operator

Good afternoon, ladies and gentlemen, and welcome to the SPS Commerce Q2 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Ms. Irmina Blaszczyk.

You may begin the conference, ma'am.

Irmina Blaszczyk

Resty. you, Thank and Commerce everyone, for us joining Good Quarter thank XXXX SPS Second Conference on afternoon, you Call.

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

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

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

the to I that, turn will Archie. with over And call

Archie Black

financial we ahead continued the In everyone. performance quarter targets. to our strong deliver welcome, XXXX, of of and Irmina, Thanks, second

XX%, Recurring EBITDA grew $XX.X million. and XX% $XX.X second XX% to quarter, revenue revenue For million. adjusted the grew to grew

that reviews on year and was gain Capterra customers, the insights The based has ranks technology every again In we Gartner providers report popular customer SPS a and rating software, Commerce's SPS products reviews to Capterra, innovation from full service to fuel a for most help world-class year an held the the map and success ranked position the thank I'd our popularity unrivaled report providing since customer the EDI EDI by after Commerce customer dedication social company, year. building their like product company's presence. earns a SPS road recent launched. and technology teams experience. shape highest

value and our the approach service choose providers success and are ability network that system are honored ERP SPS full their for our we work us growing to SPS' partners We recognize service for of and integral the partnerships our when business our our many model. with users. to

ERP Acumatica named Acumatica For SPS its cloud in to fast-growing ISP we XXXX partner for have At the services been Acumatica ERP summit, providing example, recent of company. year excellent its Commerce is the a customers.

retail customers collaborate this also at such dominated themes with key lines, We we the and recently by and delivery drop-ship. time industry year again of marketplaces and including the events, at Amazon that and retailers, digital for expectations IRCE, partners found were

marketplaces reached fulfillment online as discussion by dominate in XX industry evaluate by than faster for to XX% growth to to retailers omni-channel clear that more improve options a XXXX and guidebook, the That's the provided outpacing sales According XXXX, statistics indication IRCE delivery. offer their continues growth all points. strategy

has many and for direct-to-consumer operations. suppliers Drop-ship decades and retailers with expanding experience our top-of-mind at of SPS be to continues customers working of partners, and

several enabled vendors relied date, XXXX, Walmart.com units, vendors SPS years For for e-commerce has thousand business. drop-ship business SPS example, on several expanding across vendors Walmart they Walmart programmatically campaign. Commerce engaged Walmart.com. as Walmart onboard including rapidly drop-ship help to enablement to SPS ongoing To Since were has community to with their all an ago

analytics REI, network. new vendor is sell-through network, insights the to metrics, analytics their Covering improve successfully recently inventory retail easily and collaboration leveraging outdoor of them American completed XX% an an leading and the identify REI announce to excited program. key provide community services and also over analytics enabling of Commerce planning, enablement sales retail that We're corporation, recreation addition product SPS's to help seasonal more to suppliers important in manage levels inventory effectively. data visibility SPS

e-commerce In and to employees Commerce to the continues significant journey, With to all empower its suppliers SPS of experience retailers customers summary, at like the capitalize our I on would retail landscape. with all Commerce working revolutionizing are trends in quarter. congratulate on of decades stages accomplishments their e-commerce that SPS

financial over to turn I'll our With Kim discuss to it results. that,

Kimberly Nelson

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

QX, year-over-year was For $X,XXX. wallet share at flat approximately

compared ended of million We in $XX.X year. $XXX adjusted marketable QX quarter to and quarter, cash of the with the For securities million last was $XX.X total approximately EBITDA million.

We quarter. shares in also of SPS X repurchased the million

are I'd the to mention believe We the a broad date. stock strong today, split begin stock distributed split company's XX. basis the a stock is trading on guidance, The the be be August liquidity to announced turning allow split-adjusted investors. provide performance Before like more and to August on of to on shares and to expected will range XX to we expected to which acceptable additional greater reflects

guidance. to turning Now

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

We to million in million. EBITDA $XX.X of expect adjusted the be range to $XX.X

average with million outstanding approximately approximately $X.XX to shares shares million basis or $X.XX share average weighted XX.X per of XX.X split-adjusted $X.XX We on a with shares fully fully diluted expect fully diluted to $X.XX be of approximately earnings weighted diluted outstanding to shares.

per on non-GAAP $X.XX to basis. diluted We split-adjusted $X.XX to or expect $X.XX to $X.XX earnings approximately a be share

expense million compensation stock-based and depreciation million, expense amortization approximately $X.X expect $X.X approximately of of approximately million. We expense of $X.X

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

in to EBITDA $XX.X of million, be growth to adjusted the XX% range representing XX% $XX.X to million expect over XXXX. We

with to XX.X to million diluted with million basis XX.X split-adjusted $X.XX on fully be expect diluted shares of per We $X.XX a $X.XX approximately average $X.XX fully weighted earnings diluted or shares fully shares. of outstanding average approximately approximately weighted to outstanding shares share

We expect to per share earnings non-GAAP split-adjusted diluted to to be $X.XX $X.XX a approximately on $X.XX or $X.XX basis.

million. $XX.X for We stock-based approximately expense expense expect approximately of and compensation amortization approximately $XX.X year of depreciation million million, $X.X the of expense

net the For effective tax of a approximately investors basis, GAAP model on XX% quarterly year, calculated on should the remainder earnings. pretax a rate

for execute on with earning second SPS from its we'd pleased products for and are all targets customers and like leading financial performance our solutions. quarter We employees industry recognition and peers to and congratulate helping our

that, call With I'd questions. to the to like open

Operator

comes the line Needham. from Berg question Instructions] [Operator Our of from of Scott first

Scott Berg

split? very why Congrats split. quarter. stock now? stock period? Why's versus guess understand I why a the help a on now I I I have maybe good on this guess you're guess Kim, us off X. start Maybe prior let's undertaking

Kimberly Nelson

All right. Sure.

X for is had to financial split our stock X in strong of recognition date. performance the So that we've

that a stock more allowing We it investors. the range provide to broader really liquidity greater and will of to accessible be also do believe

relative we puts some us other to market that, so as with bit a compared a of that between caps, stock in this realized of the we SaaS top SaaS there to price, compared when were with more difference companies of was other we On line how peers shares similar number well.

Scott Berg

analytic bring REI That's the company maybe Got to to undertake bringing help the example new group? recently, new this at brought is you in this from slow I space enablement this some been a growth there. opportunity interesting I a the its then opportunity with analytics has what that to today the REI initiative? And follow-up or company helpful. drove thought Archie, your campaign in given space bit reaccelerate it. And on in for that growth guess, analytics little perspective, was up the a in space or that

Archie Black

Yes.

that me analytics. the companies Let collaboration -- take on why buy

their it inventory recommendations, think product is help make to partner to allow I them with suppliers manage really levels. truly

case as market. think REI, In the think top-of-mind total now retailers, I talk So addressable incredibly we them. this an become there's we for to has of large

So becomes matter when out in to there's of there. It's my priority. it had REIs be mind, a just a

believe we analytics. in addressable market long-term why the that's So total in

REI see And this. benefit significant going think from a I is to

I'm a we long-term ready to clearly stabilized, far retailers think on I see say anything -- the know better and still opportunity, feel warm I really I as going if overall think market, future about if down. beyond were that so to I the there's And it's I much that. analytics, I think would up, don't As we while environment. it, to project characterize still else the

Operator

from Ikeda from line Our next Koji comes the question Oppenheimer. of

Koji Ikeda

bit little I Congrats wanted on quarter. REI win. more the new Yes. in a customer analytics just dig on to at the

was there cycle, right finally for while with them was enhancement REI just helpful. about looking it be new a at -- was for sales go to thinking was time analytics? ahead to Just altogether? line? Or analytics the That REI sales that the maybe analytics of for a purchasing push sort cycle the really to this helped will technology any Or was finish REI and

Archie Black

Yes.

a with of I've retail-focused road the do about we're that fulfillment, talking extremely having winning for positive. -- offerings we've the maps our we this full mentioned and past, relationship of and as REI in was solutions suite talking We whenever about have we're a set retailers, think in fulfillment,

explain, do It's hard to they of we but when it. embrace the to retailers, talk thought

they on As awful lot have plate. it's I've their mentioned, an just

like strong have us solution, that level of they've being feel of a case helps, best can that, about when matter a it's a thinking So think competitive they they with us theirs, us being priority being coupled there like the and that we I And In it's too. in advantage. in they do but there, do of and the it, it. been REI, -- and feel gives the partner

Koji Ikeda

there it. And the going second attributable question side? net you overall new about in guys there? Got that Or It recurring the was here really quarter. a else That's the helpful. feeling how customers. revenue mean like was quick pretty on the Is then are I XXX-plus in looks enablement to community healthy programs there REI on just a super something quarter?

Kimberly Nelson

Sure.

to you've That's a To either the what crack was in That's sequential we due nice Koji, portion be XXX. bit our assume to as some REI. your primarily bit large higher incorrect campaign over campaigns. it It quarter. of in other activities specific enablement to add that point, little community enablement a So of the was than a seen would community to the quarters. had quarter a relates

have more campaign came -- the overall of from enablement already quarter. with that, a we in reflective community REI relationship lot Certainly, it's with well customers. as as the mentioned, a Archie REI of As some the but activity

Operator

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

David Hynes

in drop-ship you have prepared about more bit a talked the remarks you past. Archie, So in the than

Just these had rule it's how is that can supplier suppliers way us have How And in sense any partners you kind to often retail help a do the your drop-ship done of network? how kind understand Just I to book drop-ship I you the how your utilized qualitatively retailers many base. of different there of is any that prevalent up set customers. set for the of for? assume of across it's you? are many being up mean with

Archie Black

Yes.

So a while it's I number about we think back. a talked --

Kimberly Nelson

There's hundreds of retailers.

Archie Black

retailers, of different it it, of there's and think, XXX thousands of and using I book. rule suppliers north of Hundreds a is it's

it's retailers, big into very although I with that we're or more and on we're a so drop-ship suite as we that learning of more a going campaigns is solutions, we're and they're the focused independently what portion more because focus. community such selling less think talking believe more do enablement

is going and drop-ship retail what's supplier in my going XX% it's If you but to a distribution has will represent retailer long to drop-ship their their about fits, sales start retailer, to mature is about to going product, product a of -- be SKUs, And when because to centers. be stores their that's velocity, at in happen that the XX% think high are opinion, drop-ship. going a term sales where going of it in putting

retail believe we will sales of term, it's long drop-ship. be XX% So from the e-commerce

David Hynes

guide, right? I'll inventory, and virtual that's Yes,

Archie Black

think will. set to is build really it a I books, if But able then to all for Yes. we're more a be driving their to rule relationship importantly, you with take case a up us and of over retailer

David Hynes

Yes, you. makes then a sense. right. that for No, And follow-up Kim,

it quarter, the pressure there. and of in little margins going we gross bit color, think Just about Any how a forward? should

Kimberly Nelson

Sure.

quarter, a So you at when little had on basis looking gross on about margin margin, things was lower. is more think your a QX, quarter. our an with annual gross you really a particular this bit to higher indicative business at looking it than it point, bit

year, of So maybe it's sort a of the more second half margin. reflective the first half the of way of gross about average probably the it, to think

lower. pretty So of QX, QX Part reason is timing. little bit the high, a is just

future. on we QX, We some what's more sure sort of in we there furthering even in focused to that example. of we're want be the enhancing to so world-class experience QX things, and going the QX customer overall So did a be make as so a customer have resources in great sure have of spend. ourselves and customer did experience going as in onetime X to bettering end-to-end an we there overall in was are to more we experience; continue Also we have so right? nature consulting-related have some on than already to Personnel-related, specific in really always bit add a make focused spend but

Operator

the question next Capital. from Celino from line of KeyBanc Jason comes Our

Unidentified Analyst

Jason. This [Devon] is a on if of may. just And for I actually couple questions, have I

can is any question and Anything be have And if just EBITDA first guidance. guidance. 'XX you color wondering provide I'm It The that. year seems to the regarding helpful. revenue full would like raised you

Kimberly Nelson

Sure.

of you're the it Part annual the the we on that guidance, up take we to correct, in did As quarter. was what relates saw based guidance.

of XXX from in the from perspective, by So the about EBITDA about end perspective. we XXX guidance our a an high beat quarter revenue

part forward. that carries So of

a we're little had back see other really comment The stabilize retail go made a the is space I'll that part bit. to beginning to is Archie

will line. gives So a top comfort trends bit address seeing. us of and in the That the that confidence more help we're sort that

day line. is When going you amount raise of feel, the we sort perspective the business, when even of investments demonstrate spend bottom then about -- to that at the bit the EBITDA the flow as ability falls well in EBITDA, to the think see And a future, you're as how combination to sort efficiencies in you look we been take of from supporting the that as have the down to as and revenue a this the we've through seeing we in day making is spend EBITDA on well. to based increase that performing we be -- Also, our a the year. that we're more

Operator

Van Rhee next from of Our line question comes Craig-Hallum. from the Jeff

Jeff Van Rhee

the interested just the first events -- change couple to with those the suppliers. to they're for within A retailers I about buying direct to the stacks your and overall their Maybe undertaking ability what know environment me. talk solutions. be respect has at in both tech for applications tend

change of So and the changing what and on can the within of side? about be their you of talk qualitatively might kind same suppliers, frequency retail the each events, drivers the and those, just

Archie Black

retail an say, Yes. you comfortable it's back stabilized environment going. we're it we the and now little environment of of a lot looking I in around more I we're feel not were with and to go if I qualitatively and real we it a where where we mean and was were couple going. And -- where say -- years a was would certain feel uncertainty

transformation, of we've a think will. -- gone you a I through if lot a heavier

And so we're more my in period I a, believe, time. of normal in think a

Jeff Van Rhee

a terms as observations? observed what Okay. -- And to analysis you relates historical variation, again, on capabilities, how just then maybe there many minute then to connections Just and cohort bringing you've features, pace potentially qualitatively their the in expand, it of for with existing the customers analysis, as talk they're to norms? any respect come which at network can on and cohort on

Archie Black

I a change. say it's Yes. wouldn't significant

and relative typically, more years things as the public grow retail larger coming X. with customers. it enablement into larger trading as X, midsize have to might one that's it a still over might a or whereas from company, And on channel, the to sales program they're and a customers, be small. last of still, dozens of They're X basis, retail start X, brought have the we'd a larger think I hundreds in supplier partners, might a campaign, even X

big customers great strong right to about standpoint. supplier smaller we've have a us then execute. that had our up very always of believe hundreds retailer from to land campaign, mindset. our are have $XX,XXX we on We've of a in is very low customer, land and thousands. ability We we expand both customers do and segment that customers, our that's on expand the have that around that customers a we we we confidence thing and a also can end can have if a on number pay significant a segment business of retailer and a a So standpoint, of enablement the the and to land And them, average

Jeff Van Rhee

guess what the than then Okay. And to that ago? with a different? I How has is is duration? sales within how it go-to-market organization, different year respect now the just Maybe changed

Archie Black

of I a think made significantly It's first stable. more off, we changes. lot

So business some we call, 'XX are, as made from the our and -- normal. would I 'XX of changes

significantly ability demos. use do and see have feel I thing we that, We in So product. of just because fulfillment a we more and to the sales best product. And cycles just a is X.X years have industry. new We that's We're it that. pretty have a easier. clearly more can like out we the different life lot better ago, I the X product have -- it have can that mean said, people of years the made only faster probably rolled That has ago, easily. we

Jeff Van Rhee

behavior, in either competitive win if OpenText, cetera? et it and others. as call rates, Sterling you them, one and sneak in, seeing frequency can Maybe Any I GXS changes one potential last, out landscape, would of

Archie Black

No.

retail very built the same still feel a we good. We've network. it's think I and

have really software you don't network. solution, just point-to-point you're a player If or a really an on-prem

feel and problem we about by the path execute enablement a solving very a for feel good good retailer than campaign, significant our on about huge We supplier the And standpoint. get the more to that gives much the they ability first pretty quickly then So we us just so network competitor can advantage. retailer. that

Operator

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

Jeffrey Lane

about in Jeffrey made you to Archie, the Lane comment wanted go I earlier to Tom. for back analytics.

was be could a include they conversations tend sales wondering using You of concerned matter your of team Analytics far timing if to just as the or relationship is And that it. and not you to lot a product? whether not for may for important they what is if between doing analytics. if just as they I supplier It's about your mentioned the talk about retailer. they're them adopt Collaboration internally the how that think the

Archie Black

Well, aren't frankly, them a lot just data. of the sharing

hands so the the So retailer is all stocks. manage ordered. what or has at customers have the the stocks. they're Obviously, And they what they retailers the what supplier data, data. the managing all can their The the has

some the some And will for supplier forecasting of do them segment.

our going each they if Most of of each will lot tell on of actually forecast in what giving on them forecasting you instead most of because that need The spend Here's point at because there's data. reality nuances a them, well, sale we ask individual talk them SKU. you retailers, is forecasting not SKU do we to good order. we're they're about, you think time what

and the reports different format. a good and times a when fax quality they an dynamic There a data that's truly it's It's they and a having concept that not e-mailing rudimentary time, from pretty of it's data. and interaction. are their get system, So faxing will same sharing lot e-mail some new be of live but it's

Jeffrey Lane

integration CovalentWorks mistaken, ASP the been If you versus of not more upselling success of think are own then a think business. sort And process customers? I'm so we have in as business? the far had they how I those any that has about of your And acquisition, $X,XXX

own have those So pull you ability in customers? seen grow any your up to

Archie Black

that a it's work product. customers is product on where strong product it's We extremely they offers the they're the such on The the very pleased have general well. migration. from because majority have the they're a and gone very quality done, had migration The some in feedback glad up SPS

has in So well Minneapolis the done The the a as team supporting migration. that to them. part They've well. gone Hats off job in extremely team Houston. great with

I So extremely think gone that's well.

a That have push. hard We been not -- really up-sell. had has our

customers. of If think you customer, cycle the we it the about life these owe to

a We having moved to come. get an and experience then SPS, up-selling with obligation the them will trained over, and have positive

or I why they're think Commerce?" "Well, will wouldn't our I that thinking a well they'll I using they're naturally. lot on that come product, SPS come naturally connections, new will That because use those of more now say, think if somebody about else

Operator

next comes Our Mark Schappel Benchmark. line question from of the from

Mark Schappel

quarter. the on job Nice

in time I has relationship remarks, you. they have a customer a why their quarter? couple Walmart.com customer the your that for reference out? on question of Walmart.com I in Just you the expand Archie, questions. prepared Is called But long did believe it been

Archie Black

No.

Just the our retail of that's work that day. but we like into we power drop-ship examples. got which I an every is way and with it's years customer -- accounts. very ongoing another another get mean leads give But of and to it to focused, of from each example. the Walmart think them exciting to also And these we for -- several power an we is business, illustration

Mark Schappel

an been follow-up over respect of with what then your SPS And helpful. moved -- customers That's question. Great. your SPS to to percentage a to CovalentWorks, platform? your earlier core just Okay. About have

Archie Black

that plus end, that majority be QX. and unique situation in concluding It's small a to then we're be we we'll that will very -- be tail we're has expect moved platform, the -- will and be over on CovalentWorks majority but and we majority it's there'll on so the -- to tail the stay vast be expect and the the small, some

Operator

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

David Gearhart

us the organic from or contribution housekeeping. the and quarter revenue at in EDI you least is question CovalentWorks the Can First figure? give growth Admin

Kimberly Nelson

very of of would $X.X we had those Yes. revenue period, had in David, That's for CovalentWorks mentioned a about we time the sort that represent obviously. provide we the so the million everything of At announced year. overall back time total. business, small our on QX amount acquisitions, a

incorporate just the So our -- results it's just total.

from So is looking when your announced million the for back year. for $X.X we data of acquisition probably the point about you're

David Gearhart

Got an if the either dollar a been heard then we've basis on churn customer I while update could basis. a it's wondered you update it. us on just metrics, on since on a And or that.

Kimberly Nelson

remained than That's then that. that XX%, The sort consistent. is XX% Sure. very half to consistently less that's between it's dollar And customer of churns a where been. little the of churn

X% years. prior from about So a quarters dollar churn and perspective. with Again, consistent prior

David Gearhart

Perfect. Archie, at becoming And first had is from bit environments Walmart.com. taking then, EDI commitments. marketplace you in hearing especially volume were terms other talking about I specifically events, been party a marketplace of and more requirements little And a bit, about with fore rising more IRCE at as in to the in lieu dollar suppliers manual processes, and or are inventory of more scale, the around

marketplaces that is EDI? sell on way that marketplace-specific use SPS a to wondering, need targets Just entities that there

go Can are guys you those lot by like built to how connect you market what-not in a go us these saying in Or enablement those relationships we SPS. do want relationships? of Target marketplaces? after you have but know suppliers, to capture please give a can I sense community some come you programs, you that to or plus with individual

Archie Black

a a has a start if little to marketplace. dynamics because to different necessarily retailer decide marketplace, doesn't marketplace buy from bit Well, the it's

and marketplace. up you can set operations connect then the get to You your

how it's sale So doing of a supplier-driven is it. much we're more a

we bought are of do storefront. a interesting and the we what's Amazon, just let's marketplace, frankly, lot and customers or that they can it's just for work Shopify with, marketplaces, their existing also, going directly is very that either And small then want for say, to customers

the it Shopify. at We API link will integrate and to

Shopify, a work probably integration that and the wants one Shopify brick with mortar So because we ERP e-commerce, as system. almost doing marketplaces, and back look somebody then at we'll into and connection retail is

we much suppliers. how So sale with to work But supplier-driven those a as it's retail-driven sale. opposed that's more a

David Gearhart

side the have I dedicated And attacking particular this sales you with do mean opportunity? resources on that,

Archie Black

don't most and e-commerce. because They and sell they're the just to marketplaces going of suppliers, marketplaces sell to to brick-and-mortar

So there are supplier people. sales

to can customers are set there that to their that. be they're Now and do marketplaces within just territory selling up

Operator

from question the Next Pat from comes of Instructions] line JMP Securities. [Operator Walravens

Unidentified Analyst

because This maybe Kim. have and we adjusted think there? for terms I for the EBITDA of was and in so, is full I [Matt] you guidance how year wondering margin about XXXX, that quarter raised a question and even Pat. this should

Kimberly Nelson

Sure.

raise well did for as the expectations as from the revenue we year So both EBITDA.

color that I that of as by retail of partly revenue Some provided what sort to somewhat the driven the previously by relates driven some in the some then -- an EBITDA long down. That both course, also seen. it saw -- that still investing translates be we to term short we've of that quarter, allows flow drivers partially of those But as increase well margins in as in to some us, as the stability term.

is expectations does and we a the by it EBITDA perspective. took from differences about a radical to because necessarily not revenue translate margin that a line So an up just way perspective, line from think into

Operator

your this concludes today's day. and wonderful gentlemen, have for Ladies participation, you conference. a Thank and

all may disconnect. You

SPS Commerce (SPSC) 26 Jul 192019 Q2 Earnings call transcript