SPS Commerce, Inc. (NASDAQ:SPSC) Q1 2024 Earnings Call Transcript April 25, 2024
SPS Commerce, Inc. beats earnings expectations. Reported EPS is $0.86, expectations were $0.73. SPS Commerce, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the SPS Commerce First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Irmina Blaszczyk, Investor Relations for SPS Commerce. Please go ahead.
Irmina Blaszczyk: Thank you, Drew. Good afternoon, everyone and thank you for joining us on SPS first quarter 2024 conference call. We will make certain statements today including with respect to our expected financial results, go-to-market strategy and efforts designed to increase our traction and penetration with retailers and other customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note, these forward-looking statements reflect our opinions only as of the date of this call and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Please refer to our SEC filings, specifically our Form 10-K as well as our financial results press release for a more detailed description of the risk factors that may affect our results. These documents are available at our website, spscommerce.com and at the SEC’s website, sec.gov. In addition, we are providing a historical data sheet for easy reference on our Investor Relations section of our website, spscommerce.com. 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 Chad.
Chad Collins: Thanks, Irmina 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. Recurring revenue also grew 19%. As a leader in supply chain cloud services, we are capitalizing on ongoing investments in automation. According to the 2023 MHI Annual Report of over 1,000 supply chain and manufacturing leaders, 74% plan to invest in supply chain technology and innovation with 90% planning to spend over $1 million, an increase of 24% over last year to improve supply chain resiliency, sustainability and transparency. With an ongoing focus on automation across retail, SPS is leveraging our strong channel partnerships with technology leaders such as Acumatica, 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.
Underscoring the value of such a collaboration, SPS was recently honored with the ISV Partner of the Year Award for distribution at the Acumatica Summit. SPS offers deep integration expertise to help our customers increase the effectiveness of their ERP system and enable instant connections to trading partners. As we continue to grow our network, we remain committed to excellent customer experience. We recently acquired SAP Business One integration technology from Vision33, an expert in EDI system automation, expanding our leadership in full-service EDI. This acquisition deepens our expertise and experience in this space and broadens our access within the SAP ecosystem. The investments we make in our business and our solutions are key to our customer acquisition success and long-standing partnerships.
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, offering a diverse brand portfolio and a global presence, selling products through a variety of channels, including Big-Box retailers, online retailers and direct-to-consumer. The company’s success translated into rapid growth and increasing order volumes which drove the need for automation. Select brands upgraded its ERP by migrating to Oracle NetSuite, bolstering its infrastructure for scalability. Leveraging the NetSuite partnership with SPS, the company automated its 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 3PLs to fully automate the order-to-cash process. This partnership truly exemplifies the benefits SPS customers receive through our network model and commitment to last mile ERP integration technology. 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 5 acquired retailers was outsourced to SPS. Throughout this long-standing relationship, SPS’ role evolved from a technology vendor to a strategic partner, delivering valuable insights that support order planning and distribution efforts across Canadian Tire’s network.
With more than 20 years in partnership supporting the significant growth trajectory, Canadian Tire trusts SPS’ retail expertise to help them make the right decisions as they strive for supply chain resilience among evolving market demands. GNC, a leading health and wellness brand maintains a vast retail presence, strong wholesale partnerships and a 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 with over 1,000 vendors and 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 summarize, SPS’ vast network, retail expertise and unique go-to-market strategy are 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 world’s retail network. With that, I’ll turn it over to Kim to discuss our financial results.
Kim Nelson: Thanks, Chad. We had a great first quarter of 2024. Revenue was $149.6 million, a 19% increase over Q1 of last year and represented our 93rd consecutive quarter of revenue growth. Recurring revenue also grew 19% year-over-year. The total number of recurring revenue customers increased 5% year-over-year to approximately 44,800 and wallet share increased 13% to approximately 12,450. 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. Since a large majority of those vendors are already existing SPS customers, the number of recurring revenue customers was flat sequentially but the campaign contributed to solid growth in wallet share.
For the quarter, adjusted EBITDA grew 20% to $44.4 million compared to $37 million in Q1 of last year. We ended the quarter with total cash and investments of $291 million and repurchased approximately $20 million of SPS shares. Now turning to guidance. For the second quarter of 2024, we expect revenue to be in the range of $150.9 million to $151.7 million which represents approximately 16% year-over-year growth. 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 $0.45 to $0.46 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 $0.75 to $0.76, 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.
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, representing growth of approximately 17% to 18%. We expect fully diluted earnings per share to be in the range of $1.99 to $2.02 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 to $3.32 with stock-based compensation expense of approximately $56.1 million, depreciation expense of approximately $19.5 million and amortization expense for the year of approximately $18.1 million. For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on GAAP pre-tax net earnings.
Beyond 2024, 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 EBITDA dollar growth of 15% to 25% as we invest in the business to support current and future growth. In the long term, we maintain our target model for adjusted EBITDA margin of 35%. 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 in the retail supply chain. And with that, I’d like to open the call to questions.
Operator: [Operator Instructions] The first question comes from Scott Berg with Needham.
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