Good day, welcome to the SPS Commerce First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star, then zero on your telephone keypad. 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, Andrew, and good afternoon, everyone, and thank you for joining us on SPS Commerce 1st quarter 2023 conference call. We will make certain statements today, including with respect to our expected financial results with 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 reverse 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. 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. I will turn the call over to Archie. Thanks, Irmina, and welcome, everyone. The first quarter of 2023 marks a strong start to the year as macro and omni-channel dynamics continue to drive the need for efficiency across the retail industry. We continue to see strong momentum in fulfillment and analytics and achieve total revenue of $125.9 million. Both total revenue and recurring revenue grew 20%. Before I continue with my prepared remarks, I'd like to acknowledge the announcement we made in early March about my planned retirement. The board is in the process of conducting a search for my successor, and in the meantime, we continue to execute our strategy to be the world's retail network. The expertise and knowledge we gain from working with over 115,000 trading partners worldwide uniquely positions us as a business advisor to existing and potential customers who are looking to improve efficiency and productivity. Over the past three years, retailers and suppliers face changing consumer behavior, growth in sales channels, and volatility in the supply chain. Coupled with ongoing macroeconomic uncertainty, strain on the retail industry has been substantial, uncovering inefficiencies among the trading partners of all sizes. SPS Commerce is proud to work with retailers and suppliers across different industries, helping growing businesses embrace automation and position them for success. We recently launched a community campaign for the True Value Company, a wholesaler with over 4,500 independent retail locations worldwide, and one of the largest distributors in the U.S. Our initial engagement to address specific EDI inefficiencies led to a full business assessment by SPS. Having recognized our ability to improve the quality and adoption of EDI within their vendor community, True Value decided to partner with SPS to standardize electronic order fulfillment with over 1,000 vendors. We believe this will result in improved order and inventory management, cost savings, and trading partner performance across key metrics such as fill rates and ship timelines to deliver a better customer experience. SPS Commerce's network model, our channel partner collaboration, EDI expertise, and our suite of solutions are key differentiators and underscore our competitive advantage. Orveon, a private equity-backed collective of premium cosmetic brands, was focused on long-term omni-channel success and was introduced to SPS during an ERP implementation. Making EDI a priority, Orveon became a fulfillment customer. In an effort to optimize the omni-channel experience, they subscribed to analytics to gain visibility into inventory levels and sell through across their various sales channels. Orveon is a prime example of a customer who is successfully navigating the omni-channel journey, leveraging SPS's fulfillment and analytics solutions to work with trading partners that include Bloomingdale's, Macy's, and Nordstrom. In summary, the ongoing expansion of our network is a reflection of SPS's ability to help retailers, suppliers, and emerging brands successfully and cost effectively adapt to omni-channel retail while they future-proof their investments in supply chain automation. I believe our strategy and our people position SPS Commerce for continued success as we capitalize on the growth opportunities ahead of us. With that, I'll turn it over to Kim to discuss our financial results. Thanks, Archie. We had a great first quarter of 2023. Revenue was $125.9 million, a 20% increase over Q1 of last year, represented our 89th consecutive quarter of revenue growth. Recurring revenue this quarter also grew 20% year-over-year. The total number of recurring revenue customers increased 13% year-over-year to 42,750, and wallet share increased 7% to 11,050. For the quarter, adjusted EBITDA grew 16% to $37 million, compared to $31.8 million in Q1 of last year. We ended the quarter with total cash and investments of approximately $233 million. Turning to guidance. For the second quarter of 2023, we expect revenue to be in the range of $128 million to $128.8 million, which represents approximately 17%-18% year-over-year growth. We expect adjusted EBITDA to be in the range of $36.4 million to $37 million. We expect fully diluted earnings per share to be in the range of $0.30 to $0.31, with fully diluted weighted average shares outstanding of approximately 37.5 million shares. We expect non-GAAP diluted income per share to be in the range of $0.62 to $0.63, with stock-based compensation expense of approximately $12.8 million, depreciation expense of approximately $5 million, and amortization expense of approximately $3.9 million. For the year, we expect revenue to be in the range of $525.5 million to $527.6 million, representing approximately 17% growth over 2022. We expect adjusted EBITDA to be in the range of $154.2 million to $155.8 million, representing approximately 17%-18% growth over 2022. We expect fully diluted earnings per share to be in the range of $1.55 to $1.58, with fully diluted weighted average shares outstanding of approximately 37.4 million shares. We expect non-GAAP diluted income per share to be in the range of $2.67 to $2.70, with stock-based compensation expense of approximately $45 million, depreciation expense of approximately $19.8 million, and amortization expense for the year of approximately $15.6 million. For the remainder of the year on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on GAAP pre-tax net earnings. Beyond 2023, we maintain our annual revenue growth expectations 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%-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, our history of strong financial performance and 89 consecutive quarters of revenue growth underscore the stability of our business model and our consistent execution. Despite ongoing macro dynamics, we believe we are better positioned than ever to deliver on our long-term targets and sustained 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're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Scott Berg with Needham & Company. Please go ahead. Hi, Archie and Kim. Congrats on the great quarter. Thanks for taking my questions. I guess I got two. Let's start with the revenue outperformance in the quarter. It was roughly double what it was in Q1 a year ago. What went better in the quarter than maybe you expected? Was this more of a case of, I guess a changing guidance philosophy where you're maybe a little bit more conservative on your guidance this year, just given what the macro backdrop is like? Hi, Scott. I'll take that one. As it relates to the outperformance, it was really across the board. We had solid execution on the fulfillment as well as our analytics product. We also, in this quarter, did have higher than typical one-time revenue as well. That is not something that you would anticipate or we would anticipate, would continue going forward. That was really a mix of some of the community activity, and a little bit of other one-time revenue. Got it. Helpful. Then as we think about the macro a little bit, I know we've had a chance to discuss this I think a lot over the last three or four quarters, if you, if you break down by geographic region on where your presences are, maybe it's Asia Pac, obviously with your foothold out of Australia, U.S., and Europe, are you seeing any changes there that are kind of noteworthy or, you know, anything that might be different than your expectations 6 to 12 months ago? Yeah, Scott, thanks for the question. No, we're really not seeing major movements. I mean, the biggest theme in retail, besides omni-channel and trying to catch up with consumer expectations, it is really challenging for retailers and suppliers to forecast their business because there aren't any comparables. I mean, do you compare against last Q1? Do you compare against 21, 20? You've just got multiple years that are all one-off years. That just continues to be the biggest thing. You know, they're all cautious obviously, but, take the different regions. Europe is really all about analytics. We're still see strong momentum there. Australia is really an entire ecosystem. We're seeing strong momentum there. Last is Asia, which we're really supporting North America supply chain customers, and we frankly aren't seeing a lot of change there either. I mean, not of significance anyway. Archie, just a quick follow-up on that. I know, China has opened up over the last, you know, 90-120 days, more from a travel perspective than a supply chain perspective necessarily. Does that kind of loosening of some of their restrictions and, I guess, borders, does that create an opportunity at all for you maybe as a minor tailwind of the business, or is it really kind of a non-event for you all? You know, frankly, it's somewhat of a non-event. It really comes down to the suppliers, and typically it's then the manufacturing is in China. Where that manufacturing takes place, at the end of the day, really doesn't affect us and doesn't really create an opportunity or a threat for us. Yeah. That's all I have. Thanks for taking my questions. The next question comes from Parker Lane with Stifel. Please go ahead. Yeah. Hi, thanks for taking the questions, and congrats on the quarter. Kim, noticed that wallet share was down a touch quarter-over-quarter. Wondering if you could dive into the dynamics of that. I know it's not a terribly large decline. Then just give us a reminder on the balance of wallet share and net new customer additions that you expect in the growth algorithm this year. Thanks. Sure, Parker. From a year-over-year perspective, it grew about 7%. To your point, if you look at the absolute dollars Q4 to Q1, there was a slight sequential decline. That's driven from an acquisition we made in Q4 of InterTrade. As a reminder, when we made that acquisition, we said that would add about 2,500 customers, but their average revenue per customer is much smaller than ours, roughly around $3,000. That is why you see that sequential decline because Q1 is the first full quarter where we have all of that InterTrade revenue. Also just of note, that has occurred in some other acquisitions as well. If you were to look back at Q4 2021 compared to Q1 2022, based on an acquisition we made in Q4 2021, you saw a similar type of dynamic. Got it. Appreciate that. Can you talk a little bit about gross margin leverage in this model longer term and just the impact that some of the recent acquisitions have had on gross margins, where you expect the long-term model to shake out on that front? Sure. If you think about where we're at from a gross margin, we're at, call it, sort of that mid-ish to maybe a little bit above mid-ish, 60s from a gross margin perspective. Longer term, we believe that can be in the low 70s. The biggest driver of how that will change over time, to get us to the low 70s is really primarily gonna be around scaling. Cost of goods sold is an area we've made a lot of investments in the overall customer experience. Over time, we believe we'll be able to grow into a lot of those investments. For any acquisitions we've made where the asset that we've acquired, has lower gross margins than we do, we do believe that there is nothing that would make them not equal our gross margins over time. Nothing has changed from our belief of the ability to have gross margins in the low 70s in the future. That would align with when we're at, call it that, sort of mid-30s from an adjusted EBITDA margin perspective. Understood. Appreciate the feedback. Thanks again. The next question comes from Jeff Van Rhee with Craig-Hallum. Please go ahead. Great. Thanks. Thanks, guys, and congrats on another great quarter. A couple questions. I'd love to hear a bit more about the True Value, you know, opportunity in terms of just maybe as a case study. What do they have now? What are they using? What are you displacing? How did they find you? Just a little more backdrop on how you got here. Yeah. A lot of manual processes is what we typically see in a retailer. Either, A, some of the documents are automated, but not all the documents, but it's really not across the board, so a lot of manual processes. I would say this is a little different type of company, but pretty much straight down the fairway as far as type of enablement campaign. They really are a distributor. They sit between them and the retailers. We will enable their suppliers. We'll do a typical campaign, which is where we record a webcast, we work with their team, we do calling. Those suppliers will have the opportunity to either use our solution and/or buy a competitor solution and test and certify with them. We'll be aligned at the top at True Value. It feels like... You know, obviously, there's a pretty decent number of suppliers, but we feel this is pretty down the middle, type of retailer. Just at the end of the day, they're more of a distributor than an actual retailer 'cause they're independent stores. Right. Right. Sure. on the acquisition front, just any update on sort of pricing expectations from potential sellers, pipeline of future deals that you're looking at or how it's changing? Yeah. I mean, we continue to be very active. As you would expect, I mean, one, it is a challenge, at least if companies have raised funds in the last two years, a lot of times they have real ridiculous valuation expectations, and we're just not gonna pay valuations that were normal 18 months ago but are outdated today. That does create some headwind, but a lot of times over time, they do become more, I don't know, more in check. I think the other thing we're seeing in some of these, if they are funded by investors, is a move towards profitability. A lot of them were burning a lot of cash, which creates some problems for us, and so we'd rather not do that. Some of them are getting their houses in order. We continue to be aggressive. We continue to be out there, but we're gonna stay disciplined. Last for me, in terms of the most recent, call it last 12 months, give or take, cohort of suppliers coming onto the network, any observations about how this cohort might be behaving differently with respect to the number of connections, the frequency or pace at which they start to add new connections, the size that they come in? Any notable differences about the most recent cohort that stands out? You know, that's a good question. It's something we look at pretty regularly, and it tends to be. It's pretty typical. You know, over time, they do. Over time, especially with the community enablement campaign, we have great upsell opportunity of those suppliers. It takes time, but nothing unique about over the last 12 months in particular. Okay. All right. Thanks, Black. The next question comes from Joe Vruwink with Robert W. Baird & Company. Please go ahead. Great. Hi, everyone. Yeah, I guess similar to the last question, maybe similar on just the macro topic, with a bankruptcy, retailer bankruptcy now in the news, is there any change in just how suppliers currently on the network kind of absorb information like that? Like, is there a certain immediacy where that connection, that particular connection just goes away? Or are there sometimes opportunities to actually use it as a re-engaging event and kinda re-educate on what the platform can bring, and so you don't end up losing a lot of business? Just how would you kind of approach that proposition these days? Yeah. really when you think about the supplier, there's suppliers that only use SPS for that supplier. Retailer. For that retailer. You're, you know, you're at risk of losing that supplier. Those numbers tend to be highest when we have a strong retail relationship. In other words, we're doing their onboarding, which in the Bed Bath & Beyond case, I assume that's what you're referring to, we don't have that. We don't have very many suppliers in that boat. You have suppliers that they might have 5, 10, 50, or 100 different retail trading partners they use SPS for, kinda part of typical business for these guys is they're adding and subtracting trading partners along the way. Our bigger suppliers in particular, they might stay at 50 retailers. They might go from 50 to 55, but they subtract 7 and add 12, it's kinda typical. From that standpoint, you know, I think it's kinda proof of our business model. It's not gonna have a significant impact to us. Would we like to lose any business? Obviously, we don't like to lose any business. Along the way, our job of our sales staff and our marketing team is to continually be engaging with all of those suppliers, so they're fully aware how else they can use SPS Commerce. Obviously a little bit of an escalation in those processes when you have something like a Bed Bath & Beyond. Frankly, as I talk to retailers, we're seeing Bed Bath & Beyond as a little bit more of a one-off than a, "Wow, look at what's happening to retail. Okay. That's all helpful. Thanks, Archie. you know, just based on what one of your peers in the supply chain category had to say last night, it seems like kind of rejuvenated investment in the stores, brick-and-mortar stores is something that's taking place. There may be a lagged effect, you know, when you hear about retailers sinking investment into things like point-of-sale or inventory management. Could your analytics product ultimately benefit, but it maybe benefits after those commitments? Is there not a relationship at all? I think a couple things. One, not all that surprised by the results, last night of, I assume you're referring to Manhattan, and just, you know, one of the big themes we're seeing in retail is they met the demands of the consumer in 2021, 2022, and now they're really trying to get the back-end systems. There are different lag effects for us. For instance, if a retailer is automating their distribution center, so they're gonna start receiving product in with a barcode label, that will typically, upon implementation, lead to a potential enablement campaign, and we have a partnership there. There are different, you know, lagging or leading indicators for us that can be a positive. Don't wanna overblow it, they can be a positive if, again, like if a retailer is buying Manhattan Associates that they need to get their suppliers to behave differently. They need to send an advance ship notice. They need to send a barcode label, that's where we come in. We enable those suppliers. We do an enablement campaign for those documents. A lot of those things are real positive, you know, we are seeing investment from retailers because they have met the needs of the consumer for the most part, they're not doing it efficiently, effectively, or necessarily profitably. There's a big push. Does that relationship hold with the store activity? You know, thinking of like point-of-sale just wanting to have more accurate placement of inventory if you're a supplier, visibility into kind of final demand. Does that kind of follow along? It does. Obviously, the point-of-sale is most valuable for the store activity, either the store for the consumer buying at the store or also one of the trends we're seeing is stores are becoming distribution centers. Having inventory on hand at the stores, what's selling, so that those are positives for us. I don't wanna overblow them, but they are positives for us. Yep. I'll leave it there. Thank you very much. Again, if you have a question, please press star then one. The next question comes from Christine Jiang with Northland Capital Markets. Please go ahead. Hey, guys. Thanks for taking my question, and congrats on the quarter. Just wondering if you could talk about a little bit more about the level of activity that you're seeing from channel partners. Are you still seeing strong contributions from them and are there any changes to that relative to maybe 2020 levels? Sure. Channel sales and that lead generation engine still remains very important and robust for us. There are some nuances depending on which ERP system, that still remains quite positive and quite robust. Got it. Thanks, very helpful. Then on the revenue guidance provided for Q2 and the full year, I believe there's a slight deceleration embedded for the H2 of 2023. Can you just walk us through how you're thinking about that trajectory there? Was there maybe some pull-forward that you saw in the H1 or maybe, a little bit more, you know, cautiousness baked into the guidance there? Sure. A couple things I can point you to is, one, there was a couple acquisitions that we made in the latter part of 2022 that we lapped in the latter part of 2023. That has been reflected into the guidance itself. Just as a reminder, the guidance that we just provided for our revenue expectations for the year at a midpoint is about $2 million higher than what we had anticipated just 90 days ago. Got it. Okay. The final question would for me would be on the analytics piece of the business there. Did you guys see any acceleration this quarter? You know, how did that part of the business perform? Sure. analytics grew about 10% year-over-year. Our expectation would be that we would expect to see analytics grow, you know, within a couple percentage points similar to that 10% number. stay basically at 10 or ±, you know, 1% or 2%. Got it. Thank you very much. Thank you. I'm showing no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may now disconnect.