Good afternoon, and welcome to the SPS Commerce Th ird Quarter 2022 Earnings Conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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. Thank you, Gary. Good afternoon, everyone, and thank you for joining us on SPS Commerce Third Quarter 2022 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. With that, I will turn the call over to Archie. Thanks, Irmina, and welcome everyone. SPS continues to deliver strong results as retail dynamics and increasing supply chain complexity amplify the need for automation. With double-digit revenue growth in fulfillment and analytics, total revenue grew 17% to $114.5 million, and recurring revenue grew 18%. Suppliers and brands of all sizes are benefiting from automating their processes with trading partners to improve efficiencies throughout the order fulfillment workflow, enable scale and international expansion, and increase assortment. For example, automation enables vendors to outsource fulfillment and inventory management to partners like Shopify, Amazon, or Etsy and take advantage of their vast market reach, as well as their scale to enjoy discounted shipping rates and faster delivery. According to a survey conducted on behalf of Ware2Go, a UPS company, 42% of consumers expect two-day shipping on their online orders. A separate survey from Linnworks quotes that 61% of consumers want to purchase from businesses that offer next-day delivery. Brands are learning that there are many benefits to digital transformation, not the least of which is to help create a positive customer experience. Gym+Coffee, one of Ireland's largest and fastest-growing athleisure brands, needed to streamline increased order volumes as they expanded internationally. With EDI and automation, they were able to synchronize inventory across all channels and prioritize order fulfillment based on warehouse locations. Gym+Coffee is now able to offer fast and efficient delivery to a global customer base and scale the business further. PetCulture is a joint venture between Woolworths and PetSure in Australia. As a fast-growing startup retailer, they knew the supply chain is a critical part of their business. Their goal was to provide a superior online customer experience by offering the right assortment and having inventory readily available to ensure timely order fulfillment. Partnering with SPS Commerce to launch a supplier onboarding program, PetCulture achieved 85% EDI compliance with an onboarding process set to bring on new vendors within 48 hours. EDI remains one of the most common automation methods in the grocery supply chain. To help grocers stay competitive, ensure they meet changing consumer shopping experiences, many, many retailers are standardizing how they exchange information across the supply chain. Most large retailers require EDI compliance, and for suppliers like Twin Cups, automation was necessary to scale and remain lean while signing new customers such as Safeway and Target. SPS continues to expand its network across industries to strengthen our competitive advantage. We recently acquired InterTrade, a provider of technical solutions for product information and transaction data exchange between retailers and suppliers across North America, including marquee retailers and brands in apparel and general merchandise. We are excited to have InterTrade employees and customers join our growing community of trading partners as we strengthen our leadership position to become the world's retail network. For suppliers and retailers alike, regardless of the industry, how the order is placed, where it's fulfilled, and its final destination, automation is key to improving efficiency. SPS Commerce facilitates automation, enables integration with a range of e-commerce platforms and future proofs against new process and technology requirements. We continue to believe that increasing complexity in omnichannel retail will continue to fuel the need for automation between trading partners and throughout the supply chain. With that, I'll turn it over to Kim to discuss our financial results. Thanks, Archie. We had a great third quarter of 2022. Revenue was $114.5 million, a 17% increase over Q3 of last year, and represented our 87th consecutive quarter of revenue growth. Recurring revenue this quarter grew 18% year-over-year. The total number of recurring revenue customers increased 12% year-over-year to approximately 39,550, and wallet share increased 5% to 10,900. As a reminder, in July, we announced the acquisition of GCommerce, which added approximately 500 customers to our network. For the quarter, Adjusted EBITDA grew 31% to $34.7 million compared to $26.5 million in Q3 of last year. We ended the quarter with total cash and investments of approximately $237 million and repurchased approximately $12 million of SPS shares. Now turning to guidance. We recognize that ongoing dynamics of inflationary pressure and uncertainties in the global economy may impact the retail industry and our customers. However, we have limited exposure to foreign exchange rate fluctuations, and our pricing structure is primarily driven by the number of trading partner relationships in our network. As a result, our operating model and our short and long-term growth expectations remain unchanged. For the fourth quarter of 2022, we expect revenue to be in the range of $120 million-$121 million, which represents approximately 17%-18% year-over-year growth. We expect Adjusted EBITDA to be in the range of $32.8 million-$33.5 million. We expect fully diluted earnings per share to be in the range of $0.29-$0.30, with fully diluted weighted average shares outstanding of approximately 37.2 million shares. We expect non-GAAP diluted income per share to be in the range of $0.52-$0.53, with stock-based compensation expense of approximately $8.3 million, depreciation expense of approximately $4.8 million, and amortization expense of approximately $3.8 million. For the year, we expect revenue to be in the range of $448.9 million-$449.9 million, representing approximately 17% growth over 2021. We expect Adjusted EBITDA to be in the range of $130.1 million-$130.8 million, representing approximately 22% growth over 2021. We expect fully diluted earnings per share to be in the range of $1.35-$1.36, with fully diluted weighted average shares outstanding of approximately 37 million shares. We expect non-GAAP diluted income per share to be in the range of $2.23-$2.24, with stock-based compensation expense of approximately $33.9 million, depreciation expense of approximately $16.8 million, and amortization expense for the year of approximately $11.7 million. For the remainder of the year on a quarterly basis, investors should model a 30% effective tax rate calculated on GAAP pre-tax net earnings. Beyond 2022, we maintain our annual revenue growth expectations of 15% or greater as we expand our network through community enablement campaigns and acquisitions. We will provide detailed 2023 guidance on our Q4 earnings conference call. For modeling purposes, we expect to deliver approximately $151 million-$153 million in annual Adjusted EBITDA in 2023, or approximately 15%-17% year-over-year growth. Beyond 2023, we continue to expect Adjusted EBITDA dollar growth of 15%-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, SPS's leading solutions and our growing network of trading partners across various industries continue to solidify our competitive position, strengthening our ability to capitalize on our large and expanding market opportunity and deliver consistent and profitable growth. With that, I'd like to open the call to questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Matt Pfau with William Blair. Please go ahead. Hey, thanks for taking my questions, and nice results, guys. Just wanted to ask in terms of the way to think about the macro impact, appreciate that it's very sticky solution. You need to use it to connect to retailers. What about on the new customer acquisition side? How would you expect the ability to add new suppliers to the network to be impacted if perhaps the retail segment did see some pressure next year? Yeah, a couple thoughts. One, what we've seen historically during more challenging times is actually community enablement campaigns go up because there's more pressure on retailers to make their supply chain efficient. As you know, we don't monetize the retailers, so it's a very fast, cost-efficient way for the retailer to add efficiency. The second part of really how we look at it is digital marketing. That will continue to be. We haven't seen a major change in that through different times. Then the third will be about whether ERP implementations slow down in the supplier community. We haven't seen that mainly because of the massive switch to omnichannel over the last few years, so we would continue to expect that to be reasonably strong. There are puts and takes underneath the covers when times get challenging in retail, but it tends to wash out within 1% or 2%. Great. On acquisitions, so you've made three roughly within a 12-month period here. Is it just, you know, coincidental that these businesses are coming up for sale in that 12-month period? Or is there something else going on where you're seeing customers become more willing to sell, whether that be uncertainty around the macro or something else? You know, many of these are long cycles where we've known people anywhere from two to 10 years, so a little bit of it's timing. We tend to be out there looking, and we're increasing our intensity around finding opportunities. Having said that, you know, we're gonna continue to be disciplined. We're gonna continue to look for deals that we think make sense for us. We have a significant cash balance, and we have an appetite to continue to do acquisitions that are right for us. Great. Appreciate it, guys. Excuse me. The next question is from Scott Berg with Needham. Please go ahead. Hi, Archie and Kim. Congrats on a good quarter, and thanks for taking my questions. I guess I have two. The first one is to follow up on Matt's question on the macro. You know, we received a data point yesterday that kind of talked about how global supply chains seem to be loosening up. Shipping container pricing seems to be slashed today versus where it was a year ago. As the global supply chains loosen up, is that a, I guess, a tailwind for the SPS business, or is it any sort of a headwind? Because I know in the last two years, with the tightening of global supply chains and retailers needing more trading partners, that seemed to be a boon. As that unwinds, does that change the dynamic of your customer acquisition at all? Thanks. You know, it really doesn't. You know, we're seeing different things in the supply chain, not surprising that it's shipping rates are coming down as there's been well documented excess inventory at retailers, which seems to be correcting, but obviously then that pushes back to suppliers, and the suppliers' suppliers still have excess inventory, so it'll take some time for that to work its way out. It really doesn't because there was a little bit of a pop in Q2, Q3 of 2020, where there were people who were really looking for new suppliers because of extreme shortages. Since then, we've been more or less back to normal. I don't see that being either a tailwind or a headwind. Got it. Helpful. Then on your acquisition of InterTrade, I found that one to be interesting for a couple different reasons. As I look at their product set today, it looks like they have some customers that are using them for pure EDI, but they also have a PIM product in their portfolio. I guess, how do we look at that acquisition going forward? Is this really more of just a customer acquisition, where you're gonna migrate them to your, you know, your fulfillment solutions? Or does the PIM product that they bring you give you maybe a more meaningful cross-sell opportunity as you're able to integrate that with your own technology stack? Yeah. A couple things. One, they do have a very similar fulfillment product to ours, and when it makes sense for the customer, we will move those over to our platform. You know, in a lot of cases, we have a superior platform, so that becomes pretty easy. On the what you call PIM product, it's really an item maintenance item. We call it assortment at SPS Commerce, so it's complementary to our assortment product, where what is happening is a supplier to Neiman Marcus is putting their item information onto the InterTrade platform, and InterTrade can share that information directly into Neiman Marcus or Nordstrom or whoever's their PIM. It's not really a PIM, and it's not meant to be a PIM replacement. It's sitting in between the retailer and the supplier, and so that supplier can use that information to share it with multiple retailers, which, you know, is our business model. We think that product, they've done some really nice things with that product. They have a very talented team that understands that product, will be very complementary to our Assortment product and expect those two teams as they come together to work very nicely together. Great. Helpful. Congrats again, and thanks for taking my questions. Thanks, Scott. The next question is from Parker Lane with Stifel. Please go ahead. Yeah. Hi, thanks for taking the questions. Kim, looking at the Adjusted EBITDA guide for next year, $151-$153, I'm curious if you could provide some of the big investment priorities for the company in 2023. How should we think about the impact of the recent acquisitions on the gross margin line in particular next year? Sure. On the EBITDA question, based on the guidance we just gave for 2022, that implies an EBITDA growth of about 22%. You may or may not recall that earlier in the year, our expectations for EBITDA was actually at a lower number and a lower growth rate, meaning more is dropping to the bottom line this year. The primary reason for that has to do with our pace of hiring. You may remember earlier on in Q1, as an example, we did not hire as many people as we had anticipated hiring. We have made great progress on that, and our expectation is exiting this year, we're gonna be in a great spot relative to our needs and demands that we see going into 2023. However, that does, though, put pressure when you're comparing the full year of that expense in 2023 compared to the full year of expense in 2022. A simple way to look at it is you're getting a bit more from an EBITDA growth in 2022 than originally anticipated, and therefore that EBITDA growth in 2023 would be a little bit less. Said another way, higher end of the range in 2022, a little bit lower in the range in 2023. As it relates to your second question on gross margin, the InterTrade acquisition, you can think about that as similar gross margins to SPS Commerce. We are not expecting, you know, a large, call it positive or a negative relative to the consolidated gross margin based on that acquisition. Got it. Understood. Thank you. Archie, I know last quarter this was touched on a little bit, but have you seen any variance in transaction volumes themselves as the e-commerce and broader retail environment appears to be a little bit more uncertain? I know that, you know, maybe that's something you saw in the past, but given your pricing model, it doesn't have a huge impact. Just curious if you're seeing that in the macro. Yeah, we saw that. I would say Q4, Q1. You know, obviously drop ship. I mean, we followed the general patterns of retail. The drop ship transaction volume was down as e-commerce growth either drastically slowed or actually declined, and brick-and-mortar picked up pace. We did see that, and we're seeing more activity in just the brick-and-mortar. Again, you know, the great thing for us being truly omnichannel is it's just going one place instead of another at SPS Commerce. Whereas, you know, I think when you look at the competitive landscape, that is one of our competitive advantages, is that we are really what we believe is the true omnichannel solution for suppliers and retailers. Great. Appreciate you taking the questions. Congrats on the quarter. The next question is from Joe Vruwink with Baird. Please go ahead. Great. Hi, everyone. Just to go back to the Gym+Coffee customer example. It sounds like they were upgrading their supply chain and logistics systems, and then you were brought in kind of as part of this process. Is it possible for you to kinda separate out the activity you see from ERP upgrades and the activity you see from all the adjacent supply chain investment areas like warehouse or transportation? Is it the latter area? Is that still, you know, representing an important feeder for your business? I'd say there's a lot of different feeders for our solution. If a supplier switches ERP, they are in their current environment integrating from their ERP to the different retailers. By definition, they're gonna have to make either a massive investment into their current solution or buy a new solution, which, you know, if you bought a 20-year-old solution that on-prem and now you're going to a, you know, a NetSuite or a D365 from Microsoft, a hosted solution, you're most likely not to stay with a software version. That continues to be very strong, and the challenges suppliers have with their old solutions are real. They just can't meet the business needs that they have in today's omnichannel world. As far as warehouse management systems, et cetera, that tends to be more on the retail side. If a retailer goes out and purchases Manhattan, and one of the reasons they wanna do that is they really wanna automate their distribution center. In order to do that, they do need to have their hundreds or thousands of suppliers change their behaviors. They need to start receiving an advanced ship notice with a corresponding barcode label. They need different information from the suppliers. That's where we come in and run an enablement campaign program. This is a big change management for all of their suppliers, and that's another way, you know, another change event, that is very positive for SPS Commerce. Essentially anything that's a change in their environment, a change in the way we do business, is going to be a positive for us. Okay. That's great. I didn't intend to have only Gym+Coffee questions, but another one. They're a Shopify merchant, and I just wanna ask, you know, you've added quite a few new customers over the last couple years, and I think the Shopify platform is an example that there's a lot of potential logos out there. And maybe those logos initially land, and they're smaller customers for you, yet over the past couple years, your wallet share has also kind of steadily tracked higher. I guess the question is there anything about this newer cohort of customers that you've onboarded since 2020 that would lead you to believe they're any less kind of rich in economics or potential than you would've spoken about pre-2020? No, I would tell you know, we've done this for 20 years now, is onboarded suppliers that sometimes it's their first retailer, that they're needing to do EDI from, and those tend to have really nice upsells over the first 30 months. Now, obviously, if that retailer stops doing business with them before we expand it, we also have higher churn rate in those customers, 'cause if they only use us with one retailer, we're gonna lose that customer. Those continue to be really strong, you know, supplier by supplier, but as they grow their business, we can grow right with them, and some of those are what we call sales-driven activities, and some of them are just customer-driven activities. They're landing new retailers that are requiring them to integrate to them, and that becomes an automatic upsell for us. Okay. Great. I'll leave it there. Thank you. The next question is from Jeff Van Rhee with Craig-Hallum. Please go ahead. Great. Thanks for taking the question. Hey, Kim, Archie. A couple for me. You know, Archie, maybe just to follow on somewhat similar to the prior question, but I'm just always interested in the cohort. As you're layering in the new cohort of customers, you know, this quarter, last quarter, any observations about the size of suppliers that are coming into those new cohorts or the solutions they were on that you're displacing? Any observations there? You know, Jeff, it hasn't changed drastically. It's really, you know, remember that our average supplier pays $10,000 a year, but that's somewhat misleading. There's a bell curve around that $10,000, and then we have a significant number of customers that pay us less than $3,000, and then we have, you know, several thousand customers that pay us $20,000 up to multiple hundreds of thousands of dollars. So what they're displacing, it tends to be more about what type of customer they are. In the smaller cohort, that's less than $3,000, quite often we're displacing literally email or fax. They've just never done this before. They're working with smaller retailers that aren't requiring EDI, and so this is the first time they're gonna start doing that. I think on the mid-size and larger size, it tends to be either some type of change event, an ERP switch, they're becoming acquisitive, and they can't keep up, or they're just their business is growing or changing so quickly that they realize they cannot keep up with the business demands with their legacy software. Depending on the cohort or depending on the type of customer, it really does vary. Is there anything as you look at the remaining TAM? I guess two questions. One, as you're thinking about the peak, ARPU per customer changed at all, and then two, of the remaining TAM, is there any observation about just the big pockets that have been holdouts to going to the cloud that you would make? Well, we continue to just think there's more and more opportunity out there as we go. Every year, it seems like you wake up, and you feel like you've got a smaller percentage of the TAM than you started with, even though you had good growth. I continue to think we have an incredible opportunity, not only in our existing product line, but additional product lines. Again, you know, very often when we're doing community enablement campaigns, we're essentially taking white space, a space, a group of suppliers that were using emails and doing nothing and turning it into total addressable market. That is one of the things our machine does. I think the other thing is that, you know, we have hundreds of thousands of trading partner relationships, but they're not always as deep as we'd like. They're not doing all the documents, they're not doing Assortment, Analytics, and EDI. Continue to have significant opportunity ahead of us. Mm-hmm. Okay. I'll leave it there. Thanks, guys. The next question is from Mark Schappel with Loop Capital. Please go ahead. Hi, thank you for taking my question. Archie, a couple of quarters ago, you introduced your carrier service solution, and I was wondering if you could just give us a sense of what you're seeing in terms of pipeline for the relatively new product and maybe when you think the solution may be material to the P&L? Yeah. Continue to get traction there. You know, it is a smaller add-on product, so it's never gonna be 10% of revenue. I mean, for a given customer that does this is a nice add-on that can add 5-10 points of value. It's an example of a type of add-on. It makes it more challenging for that supplier to leave SPS Commerce. The more things they rely on SPS Commerce for, the harder it is for us to be displaced. We continue to like the traction there. It's a selling advantage. It is a revenue advantage, so continue to make progress. Great. On your analytics solution, maybe you could just provide a little bit of color what you're seeing in the marketplace with that. I think you said earlier it was growing at double digits. You know, for the year, we believe we'll be at that 10% mark. Compared to where we were 12, 18 months ago, is really encouraging. We continue to be extremely optimistic, see some signs in the marketplace. It's just really hard to know when it can accelerate from where it currently is. The usage is fantastic when we're selling it, and we're seeing it on that side. More and more retailers are sharing data. Feel pretty optimistic, but you know, cautiously optimistic is what I'd say. Great. Thank you. Again, if you have a question, please press star then one. The next question is from Nehal Chokshi with Northland Capital Markets. Please go ahead. Okay. Thank you. Yes. Thank you for taking my call. Looks like, excluding the $1.7 million contribution from InterTrade for Q4 that you previously highlighted, it looks like Q4 guidance is a few hundred k less than prior implied Q4 guidance. A, is that correct? And then B, why is that? Sure. When you look at the guidance, and you compare it to 90 days ago, when you adjust for the acquisition, it's pretty similar, within a couple hundred thousand, to what we had thought about 90 days ago. For the most part, not a lot of change from 90 days ago, but our guidance does take into account, our view of what we see as it relates to, the retail space, community enablement activities and opportunities in Q4 going into 2023. Pretty similar, to 90 days ago once you adjust for the acquisition. Okay, great. 900 incremental customers in the quarter, correct? When you look at the customer number in the quarter, do keep in mind that there is an acquisition of GCommerce in there of about 500. Okay. That number is accurate that you stated, but part of that is from an acquisition of GCommerce, which was approximately 500 customers added. Right. Excluding the GCommerce, then it's 400 customers acquired organically, which I think is, you know, quite a bit lower than the year ago period and what you have been trending at. What was the driver of that? Sure. You might keep in mind comments we've made about last year, where last year was a record high for the net number of customers that we were adding and seeing relative to a lot of the demand in omnichannel. The comments that we've consistently made is 2021, an outlier in a positive way. 2022, in general, you'd expect that net customer adds to be similar or slightly higher than pre-pandemic levels. If you look at this year, Q3 and Q1, pretty darn similar. Q2 was actually a bit of an outlier and higher than typical or higher than we would have expected, and that had to do with the timing of community activity specific in the quarter. Got it. Okay. Very good. Did you give out the ARR per recurring revenue customer? Yeah, that information, it's about, call it about 10,900. Final question is that your rate of share repurchases has consistently been about $15 million per quarter during this calendar year. That's a big uptick from prior calendar year. Is that intentional, or is that just something else going on? As it relates to capital allocation, what you've seen the company do as it relates to using that cash, because we are cash flow positive, we have the opportunity to buy back stock. We also have the opportunity to put capital in the form of M&A. You've seen the company do both of those over the years, and both of those remain opportunities for us from a capital allocation perspective. As far as how much or when those may happen, we provide at the end of every quarter what we did within the quarter, so you have that information. Outside of that, you should think of it as there's basically two opportunities that the company has to use that cash in the form of M&A and stock buyback. Okay. Thank you. This concludes our question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.