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Operator
Good day, ladies and gentlemen, and welcome to the SPS Commerce Q1 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Irmina Blaszczyk. Ma'am, you may begin.
Irmina Blaszczyk - MD
Thank you, Daniel. Good afternoon, everyone, and thank you for joining us on SPS Commerce First Quarter 2018 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 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 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 adjusted EBITDA measures, including reconciliations of these measures with GAAP comparable measures.
And with that, I will turn the call over to Archie.
Archie C. Black - President, CEO & Director
Thanks, Irmina, and welcome, everyone. We posted strong performance in the first quarter of 2018 as SPS Commerce continues to be a key strategic partner to a large network of retailers and suppliers. For the first quarter, revenue grew 14% to $59.1 million, recurring revenue grew 14% and adjusted EBITDA grew 28% to $10.9 million.
Retailers are continually evolving their omnichannel strategies to adapt and anticipate the shopping habits and expectations of today's consumers, which have largely been influenced by retail giants like Amazon and Walmart. In an annual survey from Retail Systems Research, hundreds of retailers, suppliers, distributors and logistics firms weigh in on the biggest factors impacting consumers' buying decisions.
For 5 years in a row, one theme endures year-over-year. Consumers are setting expectations in retailing, and delivering on those high expectations requires accurate, efficient, streamlined and automated trading partner relationships. We anticipate that this trend will continue and accelerate in the coming years, which underscores our belief in the multibillion TAM ahead of us and the tremendous opportunity it presents for SPS Commerce and our leading platform, which enables retailing across all channels.
SPS Commerce has managed community enablement campaigns for some of the world's largest and leading retailers. Costco, for example, has been working with SPS Commerce for 15 years while expanding its retailing platform and onboarding thousands of vendors over the course of our partnership. Over the years, Costco has partnered with SPS for vendor onboarding, achieving nearly 100% automation. As a strategic partner of choice, SPS Commerce onboards new vendors to the Costco platform on a monthly basis, which in turn continually fuels the growth of our retail network.
As retailers invest in new technologies to improve supply chain execution, they turn to SPS Commerce to optimize their investments. We have recently engaged with Wesco, a leading global supply chain solutions provider and distributor to help them create a world-class customer experience by transitioning to a new electronic order fulfillment system. In a matter of months, SPS Commerce launched a community enablement program and onboarded a significant number of their vendors.
Costco and Wesco are only 2 examples of exceptional companies who recognize the benefits of supply chain efficiencies. But there are many more who are in the process of making investments to optimize supplier integration and to offer the omnichannel retail experience that customers have come to expect.
Reports from the 2018 Shoptalk Retail & Ecommerce Conference, which took place in March of this year, point to lagging e-commerce infrastructure, aging inventory and order management systems and the need for integration between retailers and suppliers to achieve some of the most basic yet imperative omnichannel capabilities such as drop-ship.
These trends validate the need for agile supply chain solutions to deploy an efficient omnichannel strategy and highlight the vast number of retailers out there who are at different stages in adapting the e-commerce. Increasing collaboration among trading partners is a complex progression, and we believe that SPS Commerce, with the retail industry's largest network and a comprehensive portfolio of e-commerce solutions, is well positioned to connect retailers and suppliers on the industry's most broadly adopted retail cloud services platform.
With that, I'll turn it over to Kim to discuss our financial results.
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Thanks, Archie. We had a great first quarter of 2018. Revenue was $59.1 million, a 14% increase over Q1 of last year and represented our 69th consecutive quarter of revenue growth. Recurring revenue this quarter grew 14% year-over-year. The total number of recurring revenue customers increased 4% year-over-year to approximately 25,900.
For Q1, wallet share increased 10% year-over-year to approximately $8,500. For the quarter, adjusted EBITDA was $10.9 million compared to $8.5 million in Q1 of last year. We ended the quarter with total cash and marketable securities of approximately $168 million. We also repurchased $5.9 million of SPS shares in the quarter.
Now turning to guidance. For the second quarter of 2018, we expect revenue to be in the range of $59.4 million to $60 million. We expect adjusted EBITDA to be in the range of $10.2 million to $10.7 million. We expect fully diluted earnings per share to be approximately $0.14 to $0.16 with fully diluted weighted shares outstanding of approximately 17.5 million shares.
We expect non-GAAP diluted earnings per share to be approximately $0.32 to $0.34 with stock-based compensation expense of approximately $3.3 million, depreciation expense of approximately $2.4 million and amortization expense of approximately $1.1 million.
For the full year, we expect revenue to be in the range of $242 million to $244 million, representing 10% to 11% growth over 2017. We expect adjusted EBITDA to be in the range of $43.5 million to $45 million, representing 27% to 32% growth over 2017.
We expect fully diluted earnings per share to be in the range of $0.70 to $0.74. We expect fully diluted weighted average shares outstanding of approximately 17.5 million shares. And we expect non-GAAP diluted earnings per share to be in the range of $1.40 to $1.45 with stock-based compensation expense of approximately $12.7 million, depreciation expense of approximately $9.9 million and amortization expense for the year to be approximately $4.5 million. For the remainder of the year, on a quarterly basis, investors should model a 30% effective tax rate calculated on GAAP pretax net earnings.
As a reminder, on our fourth quarter earnings conference call, we introduced the 2020 goal and an updated long-term target model. Specific to the 2020 goal, factoring in current industry dynamics, we expect to reach adjusted EBITDA of at least $65 million and adjusted EBITDA margin percent at least in the low-20s. We expect the revenue run rate comfortably in excess of $300 million exiting 2020.
Beyond 2020, we expect to see continued margin expansion with a long-term target model for adjusted EBITDA margin of 35%. Given the progress we've made towards our adjusted EBITDA targets in the first quarter of the year, we are well on our way to achieving our 2020 goal and feel confident in our ability to grow our margin profile in the long term.
With that, I'd like to open the call to questions.
Operator
(Operator Instructions) And our first question comes from Tom Roderick with Stifel.
Thomas Michael Roderick - MD
So Archie, my first one's for you, just thinking about this mix of growth and margin expansion. You guys certainly committed to stronger margin expansion that we've seen for growth, that growth is outperforming. Wondering, I know it's only sort of one quarter later, but if you have a chance to update us on any thoughts as you talk to your big retail partners getting into the year, how they're thinking about some of their transformational projects, and is there any break in the logjam associated with sort of moving their plan forward on that front or sort of same environment as you've seen. So I'll start with that one, then I'll -- I've got a follow-on.
Archie C. Black - President, CEO & Director
Yes. Tom, it continues to be a retailer by retailer question. And I would say, when you add up all the retailer by retailer status, I would say it's greatly unchanged from the past. Obviously, there's some that are moving forward, some that are struggling, some that are in the process of transforming. So it continues to be, I would say, consistent with what we've seen over the last 4-plus (inaudible)
Thomas Michael Roderick - MD
Fair enough. Okay. And then Archie, you guys added a few board members this quarter and some perhaps reflecting some shareholder interest or concerns out there perhaps. But maybe you can sort of talk about what your conversations with shareholders have -- sort of brought in terms of any changes in the way you think about the company, whether it's a stronger commitment to margin expansion, you guys are talking about 35% longer term now. Just sort of curious about any thoughts you might have on long-term picture as it relates to what shareholders are suggesting to you.
Archie C. Black - President, CEO & Director
No, I think -- Tom, thank you. We laid out in the December board meeting our strategy for 2018, which we think is a good, strong strategy. And to the extent we're executing on it, what we tend to do as a business is as we have a strategy at the beginning of the year, as long as we're executing on it, we tend to stay the course on the strategy. So obviously, we're out talking to shareholders, but we think we have a strategy set out that we set out in December, and we plan on continuing to execute towards that plan.
Thomas Michael Roderick - MD
Okay, good. Kim, last sort of quick one for you. As you think about the commitment to the EBITDA expansion here, particularly this year, you guys have undoubtedly had to sort of free up some resources from some places to drive a little bit of added leverage in the model. But curious if you could just sort of update us on the sales headcount numbers, how you're thinking about backfilling sales to the extent that you need to at all. And to the extent that you are sort of redeploying resources, where do those come from to gain some added leverage in the model?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. So as we mentioned on the last conference call, we were actually in a great position exiting 2017 that we felt like we have the appropriate sales resource and capacity for us to deliver on our expectations for 2018. So that puts us in a different spot than we had been historically. No change relative to our opinion that we have the appropriate sales capacity to hit our expectations in 2018.
Operator
And our next question comes from Matt Pfau with William Blair.
Matthew Charles Pfau - Analyst
First, wanted to hit on the quarter and the nice performance there. Kim, any reason why the outperformance in the first quarter wouldn't flow through to the rest of the year? And then, I guess, as we look at the growth rates throughout the year, I think the guidance sort of implies a deceleration in top line growth. So any reason why that would be?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. So as it relates to the quarter, our outperformance was primarily driven by really, the community enablement campaigns, the quantity as well as the timing associated with that. That translated to outperformance on both recurring revenue as well as onetime revenue. When we think about the full year, what we've done is we've increased the midpoint of our annual expectation by $0.5 million, which takes into account our results for Q1. But it also takes into account the fact that there's still a lot of uncertainty in the retail space and the retail environment, and both of those were reflected into our full year expectations for revenue.
Matthew Charles Pfau - Analyst
Got it. That makes sense. And then I wanted to follow up with sort of along those lines. There's a few retailers out there that are either liquidating or going to liquidate or in the process of liquidating. And if I recall back when Sports Authority liquidated, it had about a 1% negative headwind to your revenue growth. So are you exposed potentially to any of the retailers that are thinking about or in the process of liquidating? And if so, are -- has that been accounted for in the current guidance?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. So I'd say in the retail space, there's always some consolidations or bankruptcies that are occurring. For the most part, we tend to have a pretty minimal impact to that. What you're referring to that occurred back in sort of the latter part of '16, impacting us in '17 by about 1% was based on about a handful of retailers. So in general, there are bankruptcies and consolidations that occur, but they tend to have somewhat limited impact in our overall results. We -- our guidance reflects our expectations as we're thinking about the retail environments and retail in transition in 2018.
Operator
And our next question comes from Monika Garg with KeyBanc.
Monika Garg - Research Analyst
Just to follow up with the last question. I mean, you're guiding Q2 revenue almost flattish Q-over-Q. Generally, historically, if you look, Q2 is up like 4-ish to 5% Q-o-Q. Any particular reason for that?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. I'd probably go back to the previous comment I made, which is specific in the quarter. A part of our outperformance has to do with timing, some of the community enablement campaigns. So that's been taken into account as it relates to the Q2 guidance as well as the full year guidance. And also there's -- certainly, again, the retail space still has a lot of transition now that it's going through and both having been taken into account in both the Q2 as well as full year guidance.
Monika Garg - Research Analyst
All right. Then how big is the analytics business right now as a percentage of revenue? And how -- what is your growth expectation from that this year?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. So as a business, we talk about total revenue and we talk about our recurring revenue. We did give a data point last year on sort of an annual basis that we thought was helpful for investors last quarter for the full year. And that information, just to remind, for 2017, analytics was about 17% of total recurring revenue and it was growing about 4%. But that's a metric that we haven't provided on a quarterly basis.
Monika Garg - Research Analyst
So the expectation this year is kind of a similar 4% to 5%, 6% growth in the analytics business?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
We have not provided expectations by product. We've provided expectations for total company revenue. We did, however, on the last earnings call, mentioned that there is about 1% of revenue from a customer consolidation that we are impacted by, and that customer was an analytics customer.
Monika Garg - Research Analyst
All right. The last one here. You had previously talked about the customer churn of about 12%, revenue churn of 6%. Given that what we are seeing in the retail market, are these churn rates still the same? Have you seen any changes in it?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. So what we had talked about -- the numbers are similar and consistent with last quarter, which was about 13% annual customer churn and about 7% dollar churn.
Operator
And our next question comes from David Hynes with Canaccord.
David E. Hynes - Analyst
So wallet share growth continues to hold up really nicely, so maybe just some color there. Obviously, analytics plays a role in that. But just within kind of the supplier base, is it -- are you seeing better continued growth within the base? Is it landing larger suppliers? If it's the latter, maybe you could talk about what you're seeing with channel partners? Any color there would be helpful.
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. So that revenue per recurring revenue customer continues to benefit from size of customer, so larger customers impact that as well as more and more revenue from our existing customers. One thing that was interesting in this quarter as it related to the mix of community enablement campaigns that we had, we actually had a larger percentage of that mix of community enablement campaign ends up impacting us with existing customers versus newer customers. And so that also has a positive impact on that revenue per customer.
David E. Hynes - Analyst
Okay, got it. And then, Archie, as I think about interim targets, I think margin expansion is obviously going to be kind of the key metric that investors will be watching. And historically, I guess, one of the barriers to margin expansion has been M&A. So curious, kind of how do you think about balancing M&A with abilities to deliver against these interim targets? I mean, obviously, if you've seen an interesting opportunity, you have to take advantage of that. But help me think about that risk versus kind of commitment to these interim targets and how you balance that.
Archie C. Black - President, CEO & Director
Yes, I mean, we have a commitment to these interim targets, which we feel very confident of. And as we look at M&A, we're obviously going to have a same lens. I think what you would see us is, keep in mind of these commitments and probably be more aggressive on any costs in any acquisition to make sure that it does not move us in the wrong direction.
Operator
And our next question comes from Koji Ikeda with Oppenheimer.
Koji Ikeda - Associate
First question on the recurring customer net adds in the quarter. I calculated, and I think my math is right here, about 140 or so that you added in the quarter. But it sounds like the commentary that you've given so far is that it was a pretty big quarter on the community enablement program. So is that net adds just timing related? I mean, any color on the puts and takes there would be helpful.
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure, Koji. So you're right. In general, the quantity of community enablement campaigns is more correlated as it relates to the quantity of customer adds. What was interesting in this quarter is the mix of the community enablement campaigns that occurred in the quarter, more of that ended up translating into an up-sell of an existing customer versus the quantity of new customer. So it's just a slightly different dynamic that we saw in this quarter compared to last quarter as an example.
Koji Ikeda - Associate
Great. And then just a quick question here on ARPU. I know the 3 levers that you guys really talk about are the more connection and the size of the customer and even multi products. But I wanted to ask a question on pricing. And I believe pricing was definitely not a focus lever for growth over the past year. But I guess, what's the best way to think about product pricing strategy going forward? I mean, is that pricing strategy still the same? Are there going to be any changes? Any color would help there too.
Archie C. Black - President, CEO & Director
Yes. I wouldn't expect a major change. Obviously, we continue to be out landing new customers. And from that standpoint, there's always the spot pricing pressures, and I think you should expect more of the same.
Operator
And our next question comes from Jeff Van Rhee with Craig-Hallum.
Jeffrey Lee Van Rhee - Partner & Senior Research Analyst
A couple for me. Kim, the -- you touched on the timing of the enablement campaigns. Can you just expand on that. I think that was a similar comment that you had last quarter and then you referenced it again this quarter. When you say timing, are you just referring to the cycle to kicking off that campaign with shorter -- or the schedule that they want to do to get their suppliers onboard was shorter? Just maybe a little clarification.
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
Sure. So you're correct, a similar commentary we've provided the last 2 quarters and in Q4, you saw that reflected in actually higher customer net adds than you typically see in Q4. In this quarter, you saw it reflected a little bit more in net revenue per customer. But in either case, what drives the timing of the campaign, when we are at the beginning of a quarter and we're forecasting what the expectations are for that quarter, we certainly know where we've engaged in conversations with the retailers, and we have a pretty good view of what do we think that will translate to specific in that quarter. And sometimes, however, that timing may be slightly different between quarters. So when you engage in a conversation with a retailer to when you've completed the webcast and you completed the rolling out of the community enablement campaigns, some of those may happen at a faster time period than originally anticipated, and so that's what we saw in Q1. So you can think of it as some that we had initially anticipated in Q2 just happened to occur earlier and therefore, the results you're seeing in Q1.
Jeffrey Lee Van Rhee - Partner & Senior Research Analyst
And is that timing more a function of your delivery of the services, you're just being quicker in turning around that demand? Or would you say it's more that pull forward, if you will, is being more driven by that retailer saying, "Yes, let's do it. Let's move this up. Let's get the training done. Let's go"?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
It's the latter. Really, on the timing of community enablement campaigns, they're really solely driven by the timing and the pace that the retailer wants.
Jeffrey Lee Van Rhee - Partner & Senior Research Analyst
Yes, okay. That's great, okay. And then let's see, the enablement campaigns themselves, as you start reaching out to the suppliers, have you seen any meaningful impact or I should say, change with respect to what percent of those suppliers you're testing versus the percent of those suppliers that sign on as full-blown customers?
Archie C. Black - President, CEO & Director
No, I would say it's relatively consistent. Obviously, Jeff, it bounces from program to program and depending on the type of customers they have and whatnot. But it's relatively consistent over the years.
Operator
And our next question comes from Pat Walravens with JMP Securities.
Mathew Edward Spencer - Associate
This is Matt Spencer on for Pat. How many big retail bankruptcies can your guidance absorb for 2018?
Kimberly K. Nelson - Executive VP, CFO & Principal Accounting Officer
When we put together our expectations for the year, when we take into account a lot of factors, we look at what we've seen historically. We also look at what our expectations are for the year. And all of that ends up into what is reflected in our guidance. So hard for me to answer a particular number in there, because there's multiple factors that go in, but we feel comfortable with our ability to deliver on our expectations for revenues for the year in light of the environment of retailers in transition.
Mathew Edward Spencer - Associate
Got it. And then has the announced acquisition of commerce have impacted businesses at all? And could you remind us sort of how you compete with them?
Archie C. Black - President, CEO & Director
Yes, I would say there's 0 impact. I mean, obviously, their business is normal. At least I haven't seen any change in their behaviors as a business. They are specific to drop-ship. We compete with them on a retailer by retailer basis for the drop-ship component of an e-commerce provider, and that continues to be the same. We kind of got asked the same question when they went public on the flip. They went public and now they're going private, and that -- the financial capital structure of your competition doesn't have a major impact. It's more -- what -- will it have an impact to us, what access to capital they have, what people they retain, everything else will have the biggest impact. Usually, that doesn't happen over the first quarter or 2. We'll take a wait-and-see attitude on that.
Operator
And our next question comes from Mark Schappel with Benchmark.
Mark William Schappel - Equity Research Analyst
With respect to the retail macro environment, Kim, I think you touched a little bit on this in a prior question. But anyways, Archie, if you could you address any changes you're seeing or even not seeing with respect to retail buying behavior.
Archie C. Black - President, CEO & Director
Yes. From our standpoint and our product sign, it's relatively consistent over the last 4, 5, 6 quarters. Again, it's somewhat on a retailer by retailer basis, so you got to be a little careful by generalization. But there's -- we're seeing a lot of investment in technology. Sometimes that's good for us in the timing, sometimes it's not good. We sit behind difference initiatives, but more or less pretty consistent from our standpoint over the last 4 to 6 quarters.
Mark William Schappel - Equity Research Analyst
Okay. And then as a follow-up, Archie, in prior quarters, you've talked about the increasing importance of your channel partners in your business, I think it was about 22% of new business last year. Anyways, just wondering if you could just discuss some of the initiatives that you have this year as you try to build and grow your channel ecosystem.
Archie C. Black - President, CEO & Director
Yes. Our channel strategy has always been about making it easier and easier for us to do business with partners or partners to do business with us. So that's always been on both the people, process and technology side of the equation, and then both add new partners, both large and small, and then deepen the relationship. And I'd say, probably the biggest change over the last few years is going after more of the bigger global partners.
Operator
(Operator Instructions) Our next question comes from Scott Berg with Needham & Company.
Peter Marc Levine - Research Associate
It's Peter Levine in for Scott. To piggy back off the prior question, I think last quarter, you talked about a little bit of tailwind from drop-ship. And I was curious to know, I know you highlighted community enablement, but did you see any of that kind of throw through the first quarter? Maybe give us your expectations for the year, for the drop-ship product. And then Archie, curious to kind of hear your take on the market for this technology or kind of penetration rates among retailers, because our checks continually highlight, most retailer suppliers are still struggling to kind of get this whole drop-ship technology positioned right.
Archie C. Black - President, CEO & Director
Look, the drop-ship is complicated for retailers, and it takes a lot of coordination between a retailer and their supply chain and their trading partners. We continue to see it as a driver, a change management agent for retailers. Again, to remind everybody, last studies, e-commerce is about 11% of total retail. And in general, I would say that drop-ship tends to be between 10% to 20% of that 11%. So it's still a very small set part of retail, but it's growing, I think, rapidly, and it's a driver of change, which is, we believe, a tailwind.
Peter Marc Levine - Research Associate
Right. Then most of the questions answered here. So I guess, if I can ask questions on sales force productivity or at least efficiency. It's been over a year since you've restructured your sales org, new strategies that you put into place. If you look at where we are today, the changes you made, are they meeting or exceeding expectations? And then if you could share with -- where do you see the greatest gain in rep productivity? Is that coming from targeting more of these senior-level reps, improvements in kind of rep tenure or are you increasing quotas? Just kind of get an idea of what to expect for the year in terms of some leverage there in sales and marketing.
Archie C. Black - President, CEO & Director
Yes. Looking back, I think our sales leadership has a nice job really setting us up for the long term. Obviously, they're into an environment that's somewhat challenging on the retail side, but I feel good there. And I think we're focusing on -- continue to focus on just a lot of the basics of talking to the retailers, talking about the supply chain efficiencies and making sure our message is as crisp as we can and that our reps are well trained.
Operator
And I'm not showing any further questions at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.