SPS Commerce Inc (SPSC) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SPS Commerce fourth-quarter and full-year conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ellen Davis, Investor Relations.

Good afternoon, everyone, and thank you for joining us on SPS Commerce's fourth-quarter and full-year 2014 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 that 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, 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 at spscommerce.com.

During our call today, we will discuss adjusted EBITDA financial measures and non-GAAP earnings 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 and adjusted EBITDA measures, including reconciliations of these measures with comparable GAAP measures.

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

Thanks, Ellen, and welcome, everyone. We are very happy to share with you today our 2014 results. We enjoyed a strong finish to another great year for SPS Commerce. We experienced momentum in all areas of our business, as we continue to expand our network by adding new customers and expanding wallet share.

For the full-year, revenue grew 23% to $127.9 million, and adjusted EBITDA grew 32% to $18.2 million. Recurring revenue grew 24% in 2014. Customer count grew 12%, and wallet share with our customers grew 12%. This year, our efforts were focused on taking advantage of the multibillion-dollar market opportunity in front of us by harnessing growth opportunities as the retail industry moves towards omnichannel.

As you've heard us say repeatedly over the past year, this shift to omnichannel is the game-changer in the retail industry. The need to build collaborative strategies in order to provide customers with a consistent experience across channels is increasingly top-of-mind for retailers and suppliers. Our analytics offering is recognized as one of the most comprehensive and efficient ways for suppliers and retailers to collaborate to address this transformation to omnichannel.

In 2014, we continue to expand our network, adding new customers and deepening retailer relationships through the viral nature of our network. Our broad-based network enables us to work as a trusted advisor to both retailers and suppliers. This places us at the center of the retail ecosystem, sharing our extensive knowledge and best practices to guide them through the rapidly changing industry.

Our network drives incredible scale and enables a powerful lead generation engine that we continue to benefit from. This year, we received leads from over 600 retailers and 140 channel partners, and we now have over 60,000 customers.

The evolution is moving us upmarket, as larger suppliers and retailers are driving increased collaboration throughout the industry. We saw an increase in larger customers this year, which is a testament to our leadership position in the retail ecosystem. Last year, we said that the number of customers that pay us three times our average price had doubled in the last two years. That number continued to grow another 30%. This year, new revenue from channel sales increased 40% over last year, and contributed 17% of all new business, as we are seeing more and more suppliers and partners integrating to RSX.

As retailers and suppliers continue to realize the strategic importance of collaboration, the sharing of point-of-sale data continue to gain momentum. In order to stay ahead of the competitive curve, while continuing to meet growing consumer demands, retailers are increasingly sharing POS data with suppliers. Adidas is one example of a multibillion-dollar supplier who is ramping their omnichannel strategy.

Just recently, Adidas Europe introduced SPS to their most strategic European retailers at the executive level to educate them on the benefits of collaboration in the omnichannel world. Footlocker Europe was the first European retailer to sign on and share point-of-sale data with Adidas through the SPS Commerce network. Now that Footlocker Europe is sharing their data, our teams can reach out to those other suppliers to educate them on the benefits of our robust analytics solutions.

This year, new revenue from our analytics products grew more than 50% over last year and contributed 18% of our new revenue. We also expanded our global presence this year by opening an office in London and acquiring Australia-based Leadtec.

We continue to build out our international customer base and partnerships through our viral network, with offices now in Beijing, Hong Kong, London, Melbourne, and Sydney. The Leadtec acquisition allowed us to secure our position in the New Zealand and Australia markets. Through the acquisition, we added key retailer relationships to our network, and approximately 500 new customers to our platform.

In closing, 2014 was another important year of growth for SPS Commerce. We experienced momentum across all areas of our core business, and continue to take advantage of the evolution in the retail industry. We further strengthened our foothold internationally, while laying the foundation for the next phase of growth, through our robust business intelligence solution, channel strategy, and continued enhancements to our platform.

The shift to omnichannel has provided a tailwind to our success over the past two years. And we believe we are well-positioned to further advance our position as an industry leader in the supply chain world in 2015.

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

Thanks, Archie. We had a great fourth quarter. Revenue for the quarter was $35.4 million, a 27% increase over Q4 of last year, and represented our 56th consecutive quarter of revenue growth. Recurring revenue this quarter grew 28% year-over-year and 24% organically. The total number of recurring revenue customers increased 12% year-over-year to approximately 22,000. For Q4, wallet share increased 16% year-over-year to approximately 5,900. For the quarter, adjusted EBITDA was $5 million, compared to $3.8 million in Q4 of last year.

Before turning to guidance, I'll recap the year. Revenue in 2014 was $127.9 million, a 23% increase year-over-year, and adjusted EBITDA grew 32% to $18.2 million. Recurring revenue grew 24% for the year. We ended the year with total cash of approximately $130 million.

Now, turning to guidance. For the first quarter of 2015, we expect revenue to be in the range of $35.7 million to $36.2 million. We expect adjusted EBITDA to be in the range of $4.5 million to $5 million. We expect fully diluted earnings per share to be $0.02 to $0.03, with fully diluted weighted average shares outstanding of approximately 17 million shares. We expect non-GAAP diluted earnings per share to be approximately $0.16 to $0.18, with stock-based compensation expense of approximately $1.6 million, and amortization expense of approximately $800,000.

For the full-year, we expect revenues to be in the range of $155 million to $157 million. We expect adjusted EBITDA to be in the range of $21 million to $22 million, or approximately 14% adjusted EBITDA margin, in line with what we guided to on the October earnings call. We expect fully diluted earnings per share to be in the range of $0.16 to $0.20. We expect fully diluted weighted average shares outstanding of approximately 17 million shares.

We expect non-GAAP diluted earnings per share to be in the range of $0.75 to $0.78, with stock-based compensation expense of approximately $6.7 million. We expect amortization expense for the year to be approximately $3.2 million. For the year, you should model approximately 40% effective tax rate, calculated on GAAP pretax net earnings. We expect to pay nominal cash taxes in 2015, due to our NOLs.

In summary, we had a strong 2014. As we enter 2015, we'll continue to execute against our growth strategy to take advantage of the large market opportunity we see in front of us.

And with that, I'd like to open the call up to questions.

(Operator Instructions) Jeff Houston, Barrington Research.

Hey, Archie and Kim, thanks for taking my questions. To start off with, looking at the 2015 guidance, how much of that is from Leadtec? And could you update us on the integration efforts with Leadtec as well?

Sure. As it relates to what we are guiding to, we are guiding on a consolidated basis, so it includes our existing business, prior to Leadtec, as well as Leadtec. So we just give one number that's consolidated. When we announced the Leadtec acquisition earlier in October, we had given some numbers there as it relates to the size of Leadtec in our 2015 numbers.

And as far as the acquisition integration, we are very pleased with where we are. We're about 3.5 months in. The team is fully integrated. We are selling one set of products. We've had some wins together. So we feel very good about where we are. And I can't imagine that it could've gone any better than it has so far.

Great. And then second question is, looking at the metric that you share -- typically share once a year, if you look at the retailers that provide you leads -- I think you said there's 600 now -- what is the mix of -- that provide some leads versus all leads? It's a pretty helpful stat to show how your relationship grows over time with those retailers.

Sure. For the year 2014, there was approximately 150 retailers that gave us all their leads.

Okay. All right, thank you.

Bob Ansari, William Blair.

Thanks for taking my question. I guess the first question just on Europe. It's pretty encouraging to see the analytics being opened up -- you know, Footlocker, et cetera. Is Europe sort of behind on sort of accepting that ability to share or want to share analytics with suppliers?

Well, I would make this comment, is that the world is behind -- the retail world is behind on sharing analytics. And, you know, again, we are at 20% or less. And that's one of the reasons we are so excited about the analytics opportunity, is that we are so early.

And so I think the same struggles in Europe and are happening in North America, are happening in Australia. And I think we are just early. And it's retailer-by-retailer. Some retailers have been doing this for a period of time. Some, it's not even on their radar. But having a partner like Adidas that can talk about the benefits for the retailer is very powerful. And it allows us to use that network that we always talk about, to actually help us gain business.

Yes, yes. And then when you look at sort of the share of wallet, that's been sort of stable growth, kind of in that low-double-digit range. And it ticked up nicely. Obviously, clearly the assumption is analytics. But was there anything specific there? Was there a large win there? Or how should we think about that rate there?

Sure. How I would think about it is, first, the combination of both is what translates to that roughly 20-plus-percent organic recurring revenue. In the quarter itself, do keep in mind that that number does include the Leadtec acquisition. If you were to adjust that out organically for the year, that revenue per customer for the year was 13% organically.

Got it, got it. That's helpful. And then as you look at the overall enablement campaigns, and you think about your largest retailers and the target suppliers that you want to target, it's not the largest of large, even though you are definitely moving up-market. You know, if you were to look at average penetration, that 1,500 sort of set of their suppliers, where would you say you were today?

Well, there's 150 that give us all their leads. And so, that's out of -- so, very, very small. And again, remember that enablement campaigns also include analytics products, which 80% of those retailers we do have relationships with today don't share point-of-sales data. So it's a very, very small number. That's why we believe we can grow 20-plus-percent recurring revenue for years to come.

Great. That's very helpful, Archie. Thanks, guys. That's for me.

Tom Roderick, Stifel.

So, Archie, let me throw the first one at you. I love the anecdotal story you gave around Footlocker, and I'm going to just pronounce it Adidas, because I came from Northern Maine, so that's how we knew it. But you can have your fancy German pronunciation.

But for omnichannel as a whole, what are some of the drivers that are pushing them in that direction? Obviously, everybody is talking about it, but how fast is it actually moving? And then from the standpoint of retailers pushing omnichannel suppliers getting in line, is there anything specific that pins to your model or affects your model? Or is it really just kind of a broader trend of the digitization of the whole channel?

I think it is a broader trend. The consumer is now in charge. The consumer is omnichannel. I mean, everybody on this call, I would guess, has a smartphone. And the consumer is omnichannel. Now the retailers need to catch up.

Clearly, retailers and suppliers are starting to realize they need to collaborate. Somebody like Adidas realizes that they can effectively increase sales with retailers that share point-of-sales data. They can effectively deliver more precisely and more on time if they have that data. And if they can articulate that value to the retailer, then we have a really good chance at getting an enablement campaign out of that retailer.

But I think there's general trends in retail -- again, some parts of retail, some retailers are doing extremely well and some are behind. But I think all of them are feeling the pressure of it now.

And from the standpoint of how many retailers are actually sharing their point-of-sale data, I think, historically, you've kind of talked about that being in the 20% ballpark. Is that still the number? Are you starting to see it finally increase? How much penetration is going on there?

Well, we are seeing it increase, but it's still around that 20% number. Obviously, the enablement campaigns that we've run over the last year, most of those were for retailers that were just beginning to share point-of-sales data and didn't share it a year ago. It's a slow snowball evolution that will take a period of time for it to be fully accepted within the retail world.

And Archie, with the analytics business growing 50%, 18% of new business, are you still seeing that as being predominantly led by certain new logos and new customers on the analytics side? Are you starting to see more cross-selling? I would love to hear what's driving that, whether that's newer or cross-sell.

Well, it's both. Our strategy is to really do enablement campaigns and get suppliers started. It really depends on how penetrated that retail ecosystem is. So, when we talked about an Advanced Auto early in the year, that's a sector that hasn't done a lot of sharing of point-of-sales data. So there was a lot of new logos.

When we did Forzani Group, a sporting goods, that was a lot of upselling. Remember that somebody like Adidas, every time we get a new sporting good retailer, that is an upsell to them. We will get that data and we will charge them more.

So we are in a unique position -- one other thing I want to point out -- we are in a unique position in that basically, Adidas is attempting to help us upsell them. They are spending time and energy to help us get the data so that they have a larger bill and they get more value from our product offering.

Great. Kim, last quick one for you. You've given now -- two years in a row, you've given that sort of contribution for both analytics and channel. Can you give us a broader sense as to how big they are on an absolute basis as a percentage of the business? Are either in that sort of 15% to 20% ballpark for total business at this point? Or still sort of creeping up on that?

You know, at this point, we think providing the metrics of how much of new business are the appropriate metrics to share for both channel -- which is certainly a lead generation that goes to our direct sales team -- and then the analytics business. So what you can see from that, it's more indicative of future revenue. So, at this point, the metrics we share is just percentage of new revenue versus the absolute amount within our GAAP revenue.

Got it. Okay. Thank you, guys. Nice job.

Patrick Walravens, JMP.

Thank you and congratulations, you guys. So, first question, digging down into analytics a little bit. Archie, you have two analytics products, am I right? There's Shared View and Enterprise?

That's correct, Pat.

Can you just quickly tell us what they are? And then how the trends are for each of them?

Yes. Shared View is really a collaborative tool that allows a retailer and a supplier to look at the same data in the same format using the same tool. So it's really a collaborative product.

The Enterprise product is exactly the same data, but a supplier is going to use that to look at it across their different retailers, and they are going to put it in their product schema. And they are going to use it for internal usage -- perhaps to influence and to make recommendations to the retailer, but it's across all.

Typically, our sales cycle in the ideal world is to get a new customer on Shared View through an enablement campaign, and over time, be able to upsell them to an additional product of Enterprise, and to get them to use Enterprise across all of the retailers that share data with them. So, they really work together.

And the real -- the driver of your growth -- I mean, are the enterprise deals much bigger? (multiple speakers) -- is that really driving growth there?

The enterprise deals are bigger; that the Shared View is extremely important in capturing mind share. And it gives us an automatic sales event with a supplier, because we are calling on behalf of the retailer. So they are really in tandem. If you said you didn't have Shared View, the enterprise sales would be significantly lower. There is more money in the Enterprise, so it's a -- first product is the Shared View, and then the Enterprise, typically. Not always the case, but typically.

All right, great. Thank you. And then, Kim, two quick ones for you. Can you -- number one -- I'll just put them both out and let you answer them. Number one, can you remind us how you calculate organic recurring revenue growth after an acquisition? And number two, we're not used to seeing you guys eat like this. So is the business becoming lumpier? Or is it becoming less predictable?

As it relates to our definition of organic, what we do when we have an acquisition is for the first 12 months, we will share our reported results, and then we will adjust out, for those first 12 months, the dollars associated with the acquisition. And when you subtract that out for the first 12 months, that gets you to an organic number.

Once 12 months have passed, everything then is just sort of your reported numbers. There is no concept of an organic once we've lapped it for 12 months. So that answers your first question.

As it relates to the second question, if you look at our beat this quarter relative to our guidance, the beat was a combination of the timing of the Leadtec acquisition, meaning it was from October 13 through the -- through December 31. So the majority of the quarter -- as well as, obviously, we had a great solid quarter of overall business as well. So it was really a combination of those two, that drove the upside.

Is it getting less predictable?

I would say that our business model, not a lot has changed there. The biggest thing that changed in the quarter was the Leadtec acquisition and the timing of the Leadtec acquisition. Outside of that, with thousands of disparate customers all paying us relatively small ASP, that provides a large level of sort of predictability within our business model.

Okay, great. Because I think that was 18 quarters in a row. So, I like that track record. And I hope you guys keep it going. Congratulations.

Jeff Van Rhee, Craig-Hallum.

Real nice quarter, guys. A couple for you, first, Kim. I didn't catch the sales heads quarter-end. And then also on the ARPU, just wanted to be clear. I think you gave it for the year. What was the organic ARPU for the quarter? And maybe that's what you gave; I'm not sure I heard it right.

The sales headcount was about 230 salespeople. So that's up about 20% year-over-year. As it relates to the organic ARPU, that 13% I gave was the annual. You are correct on that. For the quarter, it was 14% organic.

Okay, great. And then I guess, Archie, at a high level, has there been any notable change in who you see as the competition? The frequency of who you are seeing? And then also, along those same lines, any material changes in terms of the drivers of getting deals to -- getting people to make a decision to move forward?

I think it's really an evolution. Obviously, on the smaller end, we are still seeing the same competitive landscape. We are in the larger deals more often, so we are competing against legacy software quite often. And retailers and suppliers are trying to adjust to an omnichannel world. And there's a lot of pressure on them to catch up and to make investments. So, that is a big tailwind that we want to continue to ride.

Okay. Two last ones from me then. The -- with respect to the analytics opportunity, I think you had said some time back that analytics held the likely potential to double ARPUs. Has your thinking there in terms of what analytics can mean within the customer changed?

No. It's very similar. And obviously, there is significant upside in all of our product lines. But wallet share, over time, I think we have a lot of room to continue to grow that.

Okay. And then could you just take a second and touch on the partner ecosystem? Obviously, partner deals is something you've been very focused on, can be the bigger deals -- tend to be, in fact. Can you just give us a little more clarity what's evolved there in the last three, six months? Maybe some quantification in numbers of partners or any other color you could to help us better understand that?

Certainly. Well, clearly, channel sales had a very strong year of 40% growth. And you are seeing in that growth, there is a number of new partners and there's also a deepening relationship in partners. As you enter the second, third, fourth years of partnerships, there becomes more -- they become more educated partners. They become more aware partners. And as we have success with them, they are more likely to bring you into deals.

So we are seeing a combination of both. Obviously, in the background, with RSX, introduced about two years ago now, I believe that is -- that's also a tailwind for us. So we are just seeing a lot of interest. We are also seeing that our leadership position in the retail ecosystem is -- we've had a more dominant position than we've had in the past. And I think that really bodes well for channel sales.

Okay, great. Thank you.

(Operator Instructions) Mark Rosenkranz, Northland Capital Markets.

Hi, Archie and Kim. Congrats on the great fourth-quarter. Just one quick question for me. We were recently at the NRF Trade Show last month, and it seemed that a lot of the conversations were about the analytics and the drive for more sellthrough data for suppliers. I'm just wondering, could you talk a little bit about the size and quality pipeline for your POS analytics solutions? And maybe a little bit about how adoption rates have trended recently versus, say, 2013?

Yes. Well, obviously, with -- 50% growth in 2014, we have pretty strong pipelines in sales activity. And we expect that there continues to be strong interest in the analytics. There's an awful lot of pressure from the large suppliers that are seeing the strong value of the product. And we are able to let that network work in our favor, to have somebody like an Adidas making introductions to their retail partners.

Obviously, that makes sales cycles significantly easier when you have strong partners that can articulate the value. So, we see a long-term trend that we are just starting with.

Great. Well, that's all I've got. Congrats again on a great quarter.

Thank you. Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the program. You may now disconnect. Good day.