SPS Commerce Inc (SPSC) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SPS Commerce first-quarter 2015 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host for today, Ms. Ellen Davis with The Blueshirt Group. Ma'am, you may begin.

Good afternoon, everyone, and thank you for joining us on SPS Commerce's first-quarter 2015 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 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 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 results for the first quarter of 2015.

We kicked off a great start to the year. Total revenue grew 28% to $37 million. Recurring revenue grew 29% and adjusted EBITDA was $4.7 million. This quarter, we remain focused on taking advantage of the multibillion-dollar market opportunity in front of us by harnessing growth opportunities from the omnichannel revolution that is well underway in retail.

Experts agree that the retail industry has changed more in the last decade than it has over the last century. To give you some perspective as to the magnitude of the industry transformation, Forrester reported in the last few years alone e-commerce sales have nearly doubled from $155 billion in 2009 to $300 billion in 2014.

Even more staggering is the growth of sales influenced by consumers' web behavior. According to Forrester, 2014 web-influenced sales reached $1.4 trillion. In 2009, because of its negligible impact, the metric wasn't even tracked.

It's no surprise that the pace of omnichannel adoption is rapidly accelerating as the quest to build collaborative strategies to support seamless customer experience remains top of mind for retailers and suppliers, especially as widespread mobile adoption is driving consumers' expectations for omnichannel and retail as the new normal.

SPS is addressing the call to the omnichannel consumer. Our broad-based network enables us to work as a trusted advisor to both retailers and suppliers and places us at the center of the retail ecosystem.

We continue to expand our network, adding new customers and deepening retailer relationships. The viral nature of our network drives incredible scale and enables a powerful lead-generation engine that we continue to benefit from.

Retailer enablement campaigns continue to be an important part of our lead generation, driving thousands of leads with hundreds of retailers every year. Our recent example of this is the enablement campaign we ran for Petbarn, a leading pet store in Australia, with over 100 locations as well as an online presence. As Petbarn's business continues to grow at a rapid pace improvements to the supply chain are essential for continued success.

By moving to electronic order fulfillment, Petbarn gains the efficiencies that result from central ordering along with a streamlined receiving process. SPS's role in working with the suppliers is critical to the retailer's success.

We continue to broaden our channels program, enabling us to move up market and connect larger suppliers to their trading partners. We're seeing more suppliers and partners integrate to RSX, which enables a fast, one-time integration to our network. We are also enjoying continued momentum across our analytics suite as retailers and suppliers further realize the strategic importance of collaboration. Retailers are increasingly sharing POS data with suppliers in order to stay ahead of the competitive curve.

As SPS grows, we are continuing to invest in building the most effective experiences for the users of our products and services. In Q1, we announced the hire of Beth Jacob as Chief Customer Success Officer. In this newly-created position Beth will lead all of our global operations teams, which include defining and building customer success and retention strategies across all of our products and services.

Beth has more than 25 years domestic and global operations and technology experience in both financial services and retail. And most importantly, she has a passion for the customers, partners, and the teams that serve them. We are excited to have someone with best operations, technology, and global leadership experience on our team to help us build for the future.

In summary, I am pleased to report a great start to the year. We experienced momentum across all areas of our business. We continue to take advantage of the evolution in the retail industry, which is moving us up-market as larger suppliers and retailers drive increased collaboration throughout the industry.

We believe the only way retail companies can successfully navigate the complexity of the omnichannel landscape is by taking a networked approach to their relationships with their trading community. The shift to omnichannel has fueled a nice tailwind to our success over the past few years and we believe we are well-positioned to continue as a retail industry leader in the supply chain world.

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

Thanks, Archie. As Archie mentioned, we had a great first quarter. Revenue for the quarter was $37 million, a 28% increase over Q1 of last year, and represented our 57th consecutive quarter of revenue growth.

Recurring revenue this quarter grew 29% year-over-year and 24% organically. The total number of recurring revenue customers increased 12% year-over-year to approximately 22,400. For Q1, wallet share increased 15% year-over-year to approximately 6,000.

For the quarter, adjusted EBITDA was $4.7 million compared to $3.9 million in Q1 of last year. We ended the quarter with total cash of approximately $134 million.

Now turning to guidance. For the second quarter of 2015, we expect revenue to be in the range of $38 million to $38.5 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 $0.01 to $0.03, with fully-diluted weighted average shares outstanding of approximately 17.1 million shares.

We expect non-GAAP diluted earnings per share to be approximately $0.16 to $0.17 with stock-based compensation expense of approximately $1.7 million and depreciation expense of approximately $1.7 million. We expect amortization expense to be approximately $850,000.

For the full year, we are raising revenue guidance to the range of $156.2 million to $158.2 million. We expect adjusted EBITDA to be in the range of $21 million to $22 million. We expect fully-diluted earnings per share to be in the range of $0.15 to $0.18. We expect fully-diluted weighted average shares outstanding of approximately 17.1 million shares.

We expect non-GAAP diluted earnings per share to be in the range of $0.73 to $0.77 with stock-based compensation expense of approximately $6.6 million and depreciation expense of approximately $7 million. We expect amortization expense for the year to be approximately $3.4 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.

With that I would like to open the call to questions.

(Operator Instructions) Michael Huang, Needham and Company.

Thanks very much and great start to the year, guys. Quick question for you.

In terms of your hiring of the Chief Success Officer, was wondering if you could drill into that little bit. What are the main drivers behind the decision to bring one on? And then, with respect to kind of the near-term metrics that you will be tracking that could be helping you understand whether or not it's working or not, what do you think positively is impacted in the near-term?

Michael, there's a couple things. One, as you continue to grow, to bring in additional executive level talent is obviously important to be able to scale any business, so we took this opportunity to bring in Beth. Her role will be really customers that are post-sale. So if you start out by making it a better and better experience from an implementation and support and usage.

And then obviously to drive up-sales at least directly and possibly directly or indirectly over the long-term. So it will be measured, if you want it pure quantitative, by retention of customers and the up-sales within the install base. So customer experience becomes more and more important.

When we look back over the last five years, we have truly become a global company with multiple products. The complexity of your customer experience grows exponentially and this just felt like the right time to bring in this experienced talent, somebody like Beth.

And the follow-up to that, do you believe there's any low-hanging fruit?

We believe the fundamentally our customers have a world-class experience today. As we go forward and expand that we need to continue to make that world-class experience better and better, especially as people have multiple products, they are in multiple geographies. Perhaps the same company is in multiple geographies with multiple products.

So, no, we don't see low-hanging fruit because we see that our customers today are experiencing a world-class experience.

All right. Thanks, guys. Appreciate it.

Jeff Houston, Barrington Research.

Archie and Kim, thanks for taking my questions. I'd start off with -- it's great to hear about the enablement campaign with Petbarn in Australia. I assume that was part of the Leadtec acquisition, so a few questions there.

Was that deal already in the pipeline with Leadtec when you acquired it and then how is Leadtec tracking versus your progression -- projections when you first made your due diligence before making the acquisition?

Jeff, let me take the global view with Leadtec. We are very excited about where that acquisition has gone. To remind everybody, we closed that acquisition in October.

On day one we began selling a unified solution with a unified salesforce and a unified offering in the Australian market. We have been very, very impressed with the team in Australia, so building around that has been a very positive experience. And I think that the customers and prospects there have responded very positively.

We have sold some deals. What's interesting is in many of the deals -- it might have been in the Leadtec pipe, it might've been in the SPS pipe, it might've been in both pipes. And I think what's positive on these deals is we are able to not only close them, but because of our enablement story -- that Leadtec really didn't have an enablement story -- we're really able to add significantly more value to the retailer while getting significantly more economics out of these programs.

As far as Petbarn, I believe that was actually in both pipelines. It was a smaller deal and we used this deal as just an example of one of hundreds of retail enablement campaigns that we run across the globe.

Okay. And then it sounds like versus your projections when you first were doing the due diligence that Leadtec is exceeding those expectations. Is that fair to say?

As it relates to the acquisition, we are very pleased with the performance to date. Obviously it has been only about six months, and the integration efforts and having one combined salesforce, etc., all of that is working very well. I would say that the results have been a bit higher than what we had initially anticipated, but overall we are still just as excited, if not more excited, than where we were when we acquired the Company.

Great. Then separately, you mentioned in the prepared remarks, at least was in the press release, about moving up market to larger suppliers. Could you give us a sense of the magnitude of your pipeline or the deals that were closed in the quarter versus a year ago maybe? How much of those are some of those larger suppliers?

It has really been an evolution and we just continue to see more and more deals that are in that 3-plus times our average AR. So it just continues to be not a disproportionate amount of our revenue; it's still a smaller portion of our revenue, but it's becoming a bigger and bigger portion of our revenue.

So I would say it's more of an evolution. There wasn't a big callout this quarter, but it was a continue of the evolution of moving up market.

Thank you.

Richard Davis, Canaccord.

Thanks. So, Archie, if you have any names of people you didn't hire, I could use a Chief Success Officer to help out my stock picks, but in any case --. But you guys have done well, so I appreciate it.

Anyway, when I think about your company, it kind of looks to me like you have kind of these larger concentric circles around the core business. So you've added analytics. You've added Leadtec and stuff like that. When I was talking with the customer a couple months ago of yours, they suggested unaided that their payment system was pretty ancient.

You are not in that area, but would it ever make sense to kind of help your customers manage the payment side of the business? You're doing all of the order management and so is a logical step to kind of move that way? Again, I know you have a big addressable market, etc., but it was just an interesting question that I hadn't thought about. So thanks.

The procure to pay and some of the processes, Richard, make sense; some of the processes don't. One of the funnels we look at when we look at natural offerings, our products today -- somebody always buys one of our products to use with somebody else. So parts of the payment process could make sense on that; I wouldn't rule out. It's not bull's-eye and it's not front-and-center at this time.

And parts of it don't. If it's behind a firewall and you are determining payment processes and who to pay and when to pay, that feels like it's something that should be done within SAP, Oracle, NetSuite, or your ERP system. We don't -- that's not where we sit. So there's portions of it that could make sense.

Got it, that's helpful. Thanks.

Matt Pfau, William Blair.

Thanks for taking my questions. First, Kim, on the EPS guidance that you gave for the quarter, it looks like the EBITDA guidance was maintained but the EPS was brought down slightly. Can you just talk about what's going on there, the difference between the two and the reason for the decrease?

Sure. You're correct; we have maintained the EBITDA annual guidance. The EPS guidance went down slightly. That's simply due to a slight modification as it relates to depreciation and amortization assumptions.

Got it. Then when we think about the revenue beat in the quarter, it looks at your one-time revenue did come in strong this quarter. So is it safe to assume that that accounts for part of the beat? And then there was also a bit on the recurring revenue line as well?

Sure. There's really sort of three components of how I would characterize our beat to the revenue. One is related to Leadtec and it's our first full quarter of Leadtec. And that was about a couple hundred thousand and that is reflected, thus, in our revised annual guidance as well.

Another piece had to do with enablement campaigns and timing of enablement campaigns. When we put together our estimate for the quarter versus what ended up happening, some of the enablement campaigns that we thought would occur in the early Q2 actually occurred in Q1. And so that aspect does have an impact, particularly on the one-time because it has to do with the testing and certification fees.

So, again, a timing between Q1 and Q2 so that was a portion of it as well. That was probably about a couple hundred thousand. Then the remaining is just general health of the business.

Got it, that makes sense. Then, finally, Archie, I wanted to touch on your Europe business as well. Just any commentary on what you are seeing in that geography and what your traction has been like there.

We are focused on continuing building out the network on the fulfillment side. And then on the analytics side we are seeing a demand that is slowly taking off as far as retailers beginning this year, analytics or point-of-sale data with their suppliers. We have some suppliers that are getting more aggressive about working with their retailers, to really share with the retailers the benefits of sharing that data.

So we are seeing some traction. Again, Europe has been an evolution for us and the growth has always outpaced our domestic, but I would expect that that continue to be the case.

Got it. When you look at that geography, would it ever make sense to you to make an acquisition there like you did in Australia to help boost that business and get you more scale there?

If you find the right acquisition, obviously we have cash on our balance sheet. If we find the right acquisition that is somebody that we can build around and doesn't have something that we need to fix, it makes sense, yes.

Got it. Thanks for taking my questions, guys.

(Operator Instructions) Pat Walravens, JMP Securities.

Great, thank you. Congratulations, you guys. So Kim, a question for you and then, Archie, one for you.

Kim, if I look at the EPS, historically it has sort of always gone up. And then from Q4 to Q1 it went from 18 to 17 and Q1 to Q2 you are talking 16 to 17. Why is that under some pressure?

So as it relates to the EPS, a couple things to keep in mind. What's really in those numbers? You have stock-based compensation, you have depreciation, you have amortization. So as it relates to under the time periods you are talking about, between Q4 and Q1 as an example, we have a full quarter of amortization of a Leadtec acquisition. In Q4 you only had a partial quarter would be one example.

As it relates to the year, there is more amortization because of the acquisition that you are going to see for the full year 2015 than you would've seen for the full-year 2014. Outside of that it's just based on the normal course of business as it relates to making sure that we are spending for capacity and growth needs in the form of CapEx and, therefore, depreciation.

And in general, as a business we do provide equity to various employees. You've seen that each year and that just naturally increases each year. Not radically so, but the dollar amount does increase.

But for acquisitions, though, would you expect it to keep going up?

What we do as a business is we guide for the quarter and the year. And you've seen that reflected within our guidance for Q2 and for full year 2015.

So you don't want to say if over time you'd like it to keep going up?

Sure, what I would say is (multiple speakers) how I would look at that is if you think about our message that we provide on EBITDA, and a lot of that would translate down to the bottom line over time as well. So for example, in general our EBITDA increases each year by approximately 1% from a margin. That is not the case in 2015 due to the acquisition; that would've been the case from organic.

But if you follow that logic or concept going forward in general of our margin expansion on an annual basis, by default that does translate as well to increased EPS and non-GAAP EPS over time.

So, Archie, on the whole customer success organization thing, one sort of debate lately which is interesting is do you think that your customer success reps should have a quota, or should they just be in charge of making your customers happy?

Pat, I think where we are at right now is they don't have a quota. I believe that part of what they should do is be driving usage and making sure that the customers are satisfied, but are also getting the value out of what they've purchased which will ultimately result in increased sales.

Thank you.

Tom Roderick, Stifel.

Good afternoon. So, Archie, you've had a couple of quarters under your belt in Australia now with the Leadtec acquisition. What are you seeing from sort of cross-sell, upsell demand on the analytics side in that region as you introduce that product to the installed base and as you lead with it as a direct sale in that region now?

Well, I think there's a ton of pent up demand. As in North America, we need to continue to work on the retail side of the equation to share the data and to really utilize the data. I think those conversations have gone extremely well so far, but those tend to be the longer sales cycles. And I think the marketplace is ripe and it's ready, but I get the sense after two quarters of Leadtec that much of the environment there is very much like in North America, it continues to evolve but it doesn't change overnight.

With respect to the US market, it seems like historically, particularly since the Edifice acquisition, you have been able to lead more aggressively with the analytics product. Is that really still the case in terms of what's helping to drive the wallet share growth that we are seeing? I guess it was 15% year-on-year this quarter. Or is it in fact, you're starting to see a little bit of an acceleration on the upsell component for analytics in the US?

Tom, I would say that what has driven our ASP or that wallet share has remained pretty consistent over the last couple of years, where it's really a combination of analytics as additional product. Also, as it relates to average size of our customers. And just by nature of the longer our customers are with us, the more revenue over time we tend to get with a customer based on how they are using us with other retailers.

So I wouldn't -- we certainly like analytics and we like what analytics does for our overall revenue, but I would say it's really the combination of those three that has translated to that wallet share growth that you see.

Got it. Last one for me, Kim, can you just provide us with an update as to the sales headcount at the end of the quarter?

Sure. We exited the quarter with 240, which the up 8 sequentially.

Perfect. Excellent. That's it from me, thanks very much.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect.