SPS Commerce, Inc. (NASDAQ:SPSC) Q4 2023 Earnings Call Transcript
SPS Commerce, Inc. (NASDAQ:SPSC) Q4 2023 Earnings Call Transcript February 8, 2024
SPS Commerce, Inc. beats earnings expectations. Reported EPS is $0.75, expectations were $0.69. SPSC 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 afternoon, and welcome to the SPS Commerce Q4 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference call over to Irmina Blaszczyk. Please go ahead.
Irmina Blaszczyk: Thank you, Nohemi [ph]. Good afternoon, everyone, and thank you for joining us on SPS Commerce fourth quarter 2023 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 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. I'd like to start my prepared remarks by expressing gratitude to the SPS team for enabling a smooth leadership transition during my first full quarter as CEO. Having spent the last four months meeting SPS employees, I have come to appreciate their inherent retail expertise, their drive to deliver the best customer experience and their commitment to consistent execution. Having completed a review of our product road map, I can say with conviction that the network SPS has built over the years uniquely positions the company to optimize our customer supply chain operations. By simplifying the exchange of supply chain data, SPS has become the world's retail network.
By harnessing that data, we can help our customers make their trading partner relationships more collaborative and profitable. As we explore new use cases and adjacencies to leverage the data, we are creating a strong, defensible, competitive position and an undeniable value proposition for trading partners everywhere. Looking back to 2023, the company's strong performance underscores our ability to execute as macro and retail dynamics continue to evolve. Q4 was the 92nd consecutive quarter of revenue growth and a strong finish to an exciting year. For the full year 2023, revenue grew 19% to $536.9 million. Recurring revenue grew 20%, led by fulfillment growth of 20% and analytics which grew 10%. In 2023, the number of recurring revenue customers reached approximately 44,800.
Throughout the year, we demonstrated an ongoing success in expanding our network, as we continue to play a key role in retailers and suppliers transformation to omnichannel retail, improving supply chain efficiencies and enabling international expansion. The True Value company, a wholesaler with over 4,500 independent retail locations worldwide and one of the largest distributors in the US, partnered with SPS to standardize their electronic order fulfillment with over 1,000 vendors. Moose Toys, a large toy manufacturer in Australia and an SPS fulfillment customer since 2016, chose SPS' analytics solution to effectively manage the vast amount of data feeds from their many trading partners, as they grew across Asia Pacific, North America and Europe.
Deckers, a footwear designer and distributor which includes the UGG, Teva and Holdco brands, has been a long-time SPS analytics customer in North America. As they expanded their vendor network Europe, Deckers chose SPS' fulfillment solutions to ensure they can service a growing number of retailers across both regions. Starboard Cruise Services, a division of LVMH is known as the preferred partner for luxury retail at sea. With over 700 stores on over 100 ships across 15 cruise lines, Starboard understood the need for efficiency across their supply chain and chose to work with SPS to standardize and automate their electronic order fulfillment. To underscore the importance of this initiative, Starboard chose to share sales data using SPS Commerce analytics, which incentivized a higher-than-expected adoption of SPS' fulfillment solution by Starboard's Vendor Network.
Our continued focus on the channel and the strategic partnerships we established over the years, play a key role in the expansion of our network. As trading partners strive for automation, ERP integration is another key component to solving supply chain challenges. For example, our team's expertise in the Microsoft space earned us a spot as the featured app on the main AppSource page. SPS' Commerce's deep integration technology, multi-tenant cloud-based retail network and full-service model is allowing Microsoft and their value-added resellers to leverage best-in-class technologies when trying to migrate customers and win new business. By partnering with ERP providers, we engage with suppliers like Orbeon [ph] who are focused on long-term omnichannel success.
Automating connections with their trading partners was a priority for Orbeon who became a fulfillment customer. Shortly after, they subscribe to analytics for visibility into inventory levels and sell-through across their various sales channels and trading partners that include Bloomingdale's, Macy's and Nordstrom. SPS' ability to deliver world-class solutions includes targeted acquisitions that integrate best-in-class technology with the SPS platform. In 2023, we continue to expand our portfolio with the acquisition of TIE Kinetix to strengthen our e-invoicing capability and extend our European presence. We also acquired the Order Exchange one of our technology partners in Australia, who enabled suppliers to link their line of business applications through SPS' network, unlocking connections to trading partners around the world.
SPS plays a pivotal role in supporting retailers and suppliers on their omnichannel journey. Our technology roadmap includes initiatives to further simplify access to the network and continued build-out of treating partner connections, creating long-term growth opportunities as we continue to execute our strategy to be the world's retail network. And with that I'll turn it over to Kim to discuss our financial results. Presenter Speech
Kim Nelson: Thanks Chad. We had a great fourth quarter of 2023. Revenue was $145 million, a 19% increase over Q4 of last year and represented our 92nd consecutive quarter of revenue growth. Recurring revenue this quarter grew 19% year-over-year. Adjusted EBITDA increased 20% in the quarter to $42 million. For the year, revenue was $536.9 million, a 19% increase and recurring revenue grew 20%. The total number of recurring revenue customers increased 6% year-over-year to approximately 44800 and wallet share increased 10% to approximately 11,550. Adjusted EBITDA grew 19% to $157.6 million. We ended the year with total cash and investments of $275 million. Now, turning to guidance. For the first quarter of 2024, we expect revenue to be in the range of $145.9 million to $146.7 million, which represents 16% to 17% year-over-year growth.
For the full year, we expect revenue to be in the range of $616.5 million to $619 million, representing approximately 15% growth over 2023. For the first quarter of 2024, we expect adjusted EBITDA to be in the range of $42.1 million to $42.7 million. For the full year, we expect adjusted EBITDA to be in the range of $183 million to $185 million, representing growth of approximately 16% to 17%. For Q1 2024, we expect fully diluted earnings per share to be in the range of $0.26 to $0.27 and with fully diluted weighted average shares outstanding of approximately 37.7 million shares. We expect non-GAAP diluted income per share to be in the range of $0.72 to $0.73 with stock-based compensation expense of approximately $20.1 million, depreciation expense of approximately $4.7 million, and amortization expense of approximately $4.7 million.
For the full year 2024, we expect fully diluted earnings per share to be in the range of $1.75 to $1.78 with fully diluted weighted average shares outstanding of approximately 38 million shares. We expect non-GAAP diluted income per share to be in the range of $3.11 to $3.13 with stock-based compensation expense of approximately $55.7 million, depreciation expense of approximately $19.4 million, and amortization expense for the year of approximately $18.8 million. For the year, you 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 capitalize on market dynamics and support current and future growth.
In the long-term, we maintain our target model for adjusted EBITDA margin of 35%. In summary, SPS Commerce achieved strong fourth quarter and full year 2023 results, despite ongoing macro dynamics. We delivered profitable growth, while we closed two acquisitions and continued to strengthen our competitive position across a large addressable market. And with that, I'd like to open the call to questions.
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