Ellen Davis - The Blueshirt Group, IR Archie C. Black - President and CEO Kimberly K. Nelson - EVP and CFO.

Michael Huang - Needham & Company Jeffrey L. Houston - Barrington Research Richard Davis - Canaccord Genuity Matt Pfau - William Blair Patrick D. Walravens - JMP Securities LLC Tom M. Roderick - Stifel, Nicolaus & Company.

Good day, ladies and gentlemen, and welcome to the SPS Commerce First Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host for today Miss Ellen Davis with The Blue Shirt Group. Ma’am you may begin..

Good afternoon, everyone, and thank you for joining us on SPS Commerce’s first quarter and 2015 conference call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy and efforts designed to increase our traction and penetration with retailers and other customers.

These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially.

Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Please refer to our SEC filings as well as our financial results, press release for a more detailed description of the risk factors that may affect our results. These documents are available at our website, spscommerce.com; and the SEC’s website, sec.gov.

In addition, we are providing a historical data sheet for easy reference on our Investor Relations section of our website at spscommerce.com. During our call today, we will discuss adjusted EBITDA, financial measures and non-GAAP earnings per share.

In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP and adjusted EBITDA measures, including reconciliations of these measures with comparable GAAP measures. And with that, I will turn the call over to Archie..

Thanks, Ellen, and welcome, everyone. We are very happy to share with you today our results for the first quarter of 2015. We kicked off a great start to the year. Total revenue grew 28% to $37 million, recurring revenue grew 29%, and adjusted EBITDA was $4.7million.

This quarter we remained focused on taking advantage of the multi-billion dollar market opportunity in front of us, by harnessing growth opportunities from the omnichannel revolution that is well underway in retail. Experts agree that the retail industry has changed more in the last decade than it has over the last century.

To give you some perspective as to the magnitude of the industry transformation Forrester reported in last few years alone e-commerce sales have nearly doubled from $155 billion in 2009 to $300 billion in 2014. Even more staggering is the growth of sales of influence by consumer’s web behavior.

According to Forrester 2014 web influenced sales reached $1.4 trillion. In 2009 because of its negligible impact the metric wasn’t even tracked.

It’s no surprise that the pace of omnichannel adoption is rapidly accelerated as a quest to build collaborative strategies to support seamless customer experience remains top of mind for retailers and suppliers. Especially as wide spread mobile adoption is driving consumers’ expectations for omnichannel and retail as the new normal.

SPS is addressing the call of the omnichannel consumer. Our broad based network enabled us to work as a trusted advisor to both retailers and suppliers and places us at the center of the retail ecosystem. We continue to expand our network, adding new customers and deepening retailer relationships.

The viral nature of our network drives incredible scale and enables a powerful lead generation engine that we continue to benefit from. Retailer enablement campaigns continue to be an important part of our lead generation, driving thousands of leads with hundreds of retailers every year.

A recent example of this is the enablement campaign we ran for PetBarn, our leading pet store in Australia with over 100 locations as well as an online presence.

As PetBarn’s business continues to grow at a rapid pace improvements to the supply chain are essential for continued success, by moving to electronic order fulfillment PetBarn gains the efficiency as a result from central ordering, along with a streamline receiving process. SPS’s role in working with the suppliers is critical to the retailer success.

We continue to broaden our channels program enabling us to move up market and connect larger suppliers to their trading partners. We are seeing more suppliers and partners integrate to RSX, which enables the fast one-time integration to our network.

We are also enjoying continued momentum across our analytic suite, as retailers and suppliers further realizes the strategic importance of collaboration. Retailers are increasingly sharing POS data with suppliers in order to stay ahead of the competitive curve.

As SPS grows we are continuing to invest in building the most effective experiences for the users of our products and services. In Q1 we announced the hire Beth Jacob as Chief Customer Success Officer.

In this newly created position, Beth will lead all our global operations teams, which include defining and building customer success and retention strategies across all of our products and services.

Beth has more than 25 years domestic and global operations and technology experience in both financial services and retail, and most importantly she has a passion for the customers, partners and the teams that serve them.

We are excited to have someone with best operations, technology and global leadership experience on our team to help us build for the future. In summary, I am pleased to report a great start to the year. We experienced momentum across all areas of our business.

We continue to take advantage of the evolution in the retail industry, which is moving as up market as larger suppliers and retailers drive increased collaboration throughout the industry.

We believe the only way retail companies can successfully navigate the complexity of the omnichannel landscape is by taking a networked approach to their relationships with their trading community.

The shift to omnichannel has fueled a nice tailwind to our success over the past few years and we believe we are well-positioned to continue as a retail industry leader in the supply chain world. With that, I will turn it over to Kim to discuss our financial results..

Thanks, Archie. As Archie mentioned, we had a great first quarter, revenue for the quarter was $37 million a 28% increase over Q1 of last year and represented our 57th consecutive quarter of revenue growth. Recurring revenue this quarter grew 29% year-over-year and 24% organically.

The total number of recurring revenue customers increased 12% year-over-year to approximately 22,400. For Q1 wallet share increased 15% year-over-year to approximately 6,000. For the quarter adjusted EBITDA was $4.7 million compared to $3.9 million in Q1 of last year. We ended the quarter with total cash of approximately $134 million.

Now turning to guidance, for the second quarter of 2015 we expect revenue to be in the range of $38 million to $38.5 million. We expect adjusted EBITDA to be in the range of $4.5 million to $5 million.

We expect fully diluted earnings per share to be $0.01 to $0.03 with fully diluted weighted average shares outstanding of approximately 17.1 million shares.

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

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

We expect fully diluted weighted average shares outstanding of approximately 17.1 million shares. We expect non-GAAP diluted earnings per share to be in the range of $0.73 to $0.77, with stock-based compensation expense of approximately $6.6 million and depreciation expense of approximately $7 million.

We expect amortization expense for the year to be approximately $3.4 million. For the year you should model approximately 40% effective tax rate calculated on GAAP pre-tax net earnings. We expect to pay nominal cash taxes in 2015 due to our NOL. With that, I'd like to open the call to questions..

[Operator Instructions]. And our first quarter comes from the line of Michael Huang of Needham & Company. Your line is open. Please go ahead..

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

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

Yeah, Michael there is a couple of things, one; is as you continue to grow to bring in additional executive level talent is obviously important to be able to scale any business. So we took this opportunity bring in Beth.

Her role will be really customers that are post sales, so if you start off by making it a better and better experience from an implementation and support and usage and then obviously to drive upsells at least directly and possibly or indirectly over the long-term.

So it will be measured if you want pure quantitative by retention of customers and the upsells within the install base. So customer experience becomes more and more important. As when we look back over last five years we have truly become a global company with multiple products.

The complexity of your customer experience grows exponentially and this was just felt like the right time to bring in this experience talent somebody like Beth..

As a follow-up to that, do you believe there is any low hanging fruit?.

Well we believe that fundamentally our customers have a world class experience today. As we go forward and expand that we need to continue to make that world class experience better and better especially as people have multiple products that are in multiple geographies perhaps the same companies in multiple geographies with multiple products.

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

Great, thanks, I appreciate it..

Thank you. Our next question comes from the line of Jeff Houston of Barrington Research. Your line is open, please go ahead..

Hey, Archie and Kim, thanks for taking my questions. Start off with, it’s great to hear about the enablement campaigns with PetBarn in Australia, I assume that was a part of the Leadtec.

So few questions there, was that deal already in the pipeline with Leadtec when you acquired it and how was Leadtec kind of tracking versus your projections when you first made your due diligence before making the acquisition?.

Yeah, so Jeff let me take the global view with Leadtec, we are very excited about where that acquisition has gone to remind everybody we closed that acquisition in October on day one we began selling a unified solution with a unified sales force and a unified offering in the Australian market and we have been very, very impressed with the team in Australia.

So, building around that has been a very positive experience, and I think that the customers and the prospects there have responded very positively.

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

As far as PetBarn, I believe that was actually in both pipelines, it was a smaller deal and we use this deal as just an example of one of hundreds of retailer enablement campaigns that we run across the globe..

Okay.

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

As it relate to the acquisition we are very pleased with the performance to-date, obviously it’s been only about six months and the integration efforts and having one combined sales force et cetera all of that is working very well.

I would say that the results from - the results have been a bit higher than what we had initially anticipated, but overall we are still - we’re just as excited if not more excited than where we were when we acquired the company..

Great.

And then separately you mentioned in the prepared remarks vis-à-vis in the press release about moving up market with your larger suppliers, could you give us a sense of the magnitude of your pipeline or the detail that were closed in the quarter versus a year ago maybe how much of those are some of those larger suppliers?.

Well it’s really been an evolution and we just continue to see more and more deals that are in that three plus times our average AR. So it just continues to be not a disproportional amount of our revenue it’s still a smaller portion of our revenue, but it’s becoming a bigger and bigger portion of our revenue.

So I would say it’s more of an evolution there wasn’t a big call out this quarter, but it was continue of the evolution of moving up market..

Great, alright thank you..

Thank you. Our next question comes from the line of Richard Davis of Canaccord Genuity. Your line is open, please go ahead..

Hey, thanks. So Archie if you have any names of people you didn’t hire out I could use a Chief Success Officer to help out my stock picks but in any case. So - but you got that [indiscernible], so I appreciate it.

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

So you are not in that area but would it ever make sense to kind of help your customers manage the payment side of the business I mean you are doing all of the kind of order management is it a logical step to kind of move that way and again I know you have a big addressable market et cetera, but it was just an interesting question that haven’t thought about.

So thanks..

The [indiscernible] pay in some of the processes Richard makes sense, some of the processes don’t. One of the funnels we look out when we look at natural offerings our products today somebody always buys one of our products to use with somebody else.

So parts of the payment could process could make sense on that I won’t rule that out it’s not bulls eye it’s not thought in center at this time and parts of it don’t if it’s behind a firewall and you determine payment processes and who to pay and when to pay that feels like it’s something that should be done within SAP or call net suite or your ERP system and we don’t that’s not where we sit.

So there is portions of it that could make sense..

Got it, that’s helpful thanks Archie..

Thank you. Our next question comes from the line of Matt Pfau of William Blair. Your line is open, please go ahead..

Hi guys, thanks for taking my questions, first Kim on the EPS guidance that you gave for the quarter, it looks like the EBITDA guidance was maintained but the EPS was brought slightly, can you just talk about what’s going on there between the difference the two and the reason for decrease?.

Sure you are correct, we have maintained the EBITDA annual guidance, the EPS guidance went down slightly, that’s simply due to a slight modification as it relates to depreciation and amortization assumptions..

Got it.

And then when we think about the revenue be in the quarter it looks like your one time revenue did come in strong this quarter, so is it safe to assume that that accounts are part of the beat and then there was also a bit on the recurring revenue line as well?.

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

Another piece had to do with enablement campaigns and timing of enablement campaigns when we put together our estimate for the quarter versus what ended up happening some of the enablement campaigns that we thought would occur in the early Q2 actually occurred in Q1.

And so that aspect does have an impact particularly on the one time because it has to do with the testing and certification fees. So again the timing between Q1 and Q2, so that was portion of it as well. That was probably about couple of hundred thousand. And then the remaining is just general health of the business..

Got it, that makes sense.

And then finally, Archie I wanted to touch on your Europe business as well, just any commentary on what you are seeing in that geography and what your traction has been like there?.

Yeah, we are focused on continuing building up a network on the fulfillment side and then on the analytic side we are seeing a demand that is slowly taking off as far as retailers beginning to share analytics or point of sales data with their suppliers and we have some suppliers that are getting more aggressive about working with the retailers to really share with the retailers the benefits of sharing that data.

So we’re seeing some traction again Europe has been an evolution for us and the growth has always outpaced out domestic, so I would expect that that continue to be the case..

Got it.

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

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

Got it. Thanks for taking my questions guys..

Thank you..

[Operator Instructions] Our next question comes from the line of Pat Walravens of JMP Securities. Your line is open. Please go ahead..

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

So Kim if I look at the EPS, historically it sort of always gone up and then from Q4 to Q1 it went from $0.18 to $0.17 and Q1 to Q2 you are talking $0.16 to $0.17, why is that under some pressure?.

So as it relates to the EPS a couple of things to keep in mind. So what’s really in those numbers so you have the stock-based compensation, you have depreciation, you have amortization.

So as it relates to under the time period you are talking about, between Q4 and Q1 as an example, we have a full quarter of amortization of a Leadtec acquisition in Q4 you only had a partial quarter, would be one example.

As it relates to the year, there is more amortization because of the acquisition that you are going to see for the full year 2015 then you would have seen for the full year 2014.

Outside of that it’s just based on the normal course of business as it relates to making sure that we are spending for capacity and growth needs in the form of CapEx and therefore depreciation and in general as a business we do provide equity to various employees you have seen that each year and that just naturally increases each year, not radically so but the dollar amount does increase..

So but for acquisitions though do you expect it to keep going up?.

Well what we do as a business is we guide for the quarter and the year and you have seen that reflected within our guidance for Q2 and for full year 2015..

So you don’t want to say overtime you think it keeps going up..

Sure what I would say is - how I would look at that is, if you think about our message that we provide on EBITDA and a lot of that would translate down to the bottom line overtime as well.

So for example, in general our EBITDA increases each year by approximately 1% from a margin, that is not the case in 2015 due to the acquisition that would have been the case from organic, but if you follow that logic or concept going forward in general of our margin expansion on an annual basis, by default that does translate as well, to increased EPS and non-GAAP EPS overtime..

Okay.

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

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

Thank you. Our next question comes from the line of Tom Roderick of Stifel. Your line is open. Please go ahead..

Hey, guys. Good afternoon. So Archie you had a couple of quarters under developed in Australia now with the Leadtec acquisition.

What are you seeing from sort of cross sell, upsell demand on the analytic side in that region as you introduce that product to the install base and as you lead with that as a direct sale in that region now?.

Well I think there is a ton of pent up demand as in North America we need to continue to work on the retail side of the equation to share the data and to really utilize the data, I think those conversations are gone extremely well so far, but those are tend to be the longer sales cycles.

And I think the marketplace is right and it’s ready, but I get the sense after two quarters of Leadtec that much of the environment there is very much like in North America, it continues to evolve, but it doesn’t change overnight..

And with respect to the U.S. market, I mean it seems like historically particularly since the Edifice acquisition you have been able to lead more aggressively with the analytics product.

Is that really still the case in terms of what’s helping to drive the wallet share growth that we are seeing I guess it was 15% year-over-year this quarter? Or is it in fact you are starting to see a little bit of an acceleration on the upsell components for analytics in the U.S.?.

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

So we certainly like analytics and we like what analytics does to our overall revenue, but I would say it’s really the combination of those three that has translated to that wallet share growth that you see..

Got it.

Last one from me Kim, can you just provide us with an update as to the sales side account at the end of the quarter?.

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

Perfect, excellent, that’s it for me. Thanks very much..

Thank you. And ladies and gentlemen thank you for your participation in today’s conference. This does conclude the program and you may all disconnect..