SPS Commerce targets $11.1B TAM with 19%-20% revenue growth in 2025

Earnings Call Insights: SPS Commerce, Inc. (NASDAQ:SPSC) Q4 2024

Management View

• CEO Chad Collins highlighted 2024 as a year of significant growth, with revenue increasing 19% to $637.8 million. Recurring revenue grew 20%, driven by strong performance in fulfillment and analytics. He emphasized the strategic acquisitions of Carbon6, SupplyPike, and Traverse Systems, which expand SPS's product portfolio and strengthen its position in revenue recovery and supply chain optimization.
• The company announced a $11.1 billion total addressable market (TAM), including $6.5 billion in the U.S. Management worked with a third-party consulting firm to evaluate market opportunities, identifying potential wallet share growth across small, medium, and large customer segments.
• CFO Kim Nelson reported Q4 revenue of $170.9 million, representing an 18% year-over-year increase. Adjusted EBITDA rose 18% to $49.6 million. For the full year, adjusted EBITDA reached $186.6 million, supported by recurring revenue customers growing to approximately 45,350 and wallet share increasing to $13,300.
• The company ended 2024 with $241 million in cash and investments, positioning it well for future growth and acquisitions.

Outlook

• Q1 2025 revenue guidance is $178.5 million to $180 million, reflecting 19%-20% year-over-year growth. Adjusted EBITDA is expected to range from $49.5 million to $50.5 million, while non-GAAP diluted EPS is projected between $0.80 and $0.84.
• Full-year 2025 revenue is forecasted at $758 million to $763 million, with adjusted EBITDA expected to grow 22%-24%, reaching $227.5 million to $231 million. Non-GAAP diluted EPS for the year is anticipated to range from $3.78 to $3.84.
• Management reaffirmed its long-term annual revenue growth expectation of 15% or greater, supported by community enablement campaigns and cross-selling opportunities from recent acquisitions.

Financial Results

• Q4 2024 revenue reached $170.9 million, an 18% increase year-over-year. Recurring revenue grew 19%, maintaining strong momentum from prior quarters.
• Annual revenue totaled $637.8 million, a 19% increase from 2023, with recurring revenue accounting for a significant portion of the growth.
• Adjusted EBITDA for the year was $186.6 million, up 18%. Wallet share expanded to $13,300, benefiting from acquisitions and product portfolio enhancements.
• The company's $241 million in cash and investments provides a foundation for continued expansion and investment.

Q&A

• George Kurosawa, Citi: Asked about the TAM analysis and wallet share growth. CEO Chad Collins explained that the updated TAM reflects expanded product offerings and validated potential wallet share increases across customer segments. He emphasized existing customers exceeding target wallet share as evidence of growth potential.
• Dylan Becker, William Blair: Inquired about the prioritization of small versus large customers within the TAM. Collins noted opportunities across all segments, with smaller customers often entering through community enablement campaigns and larger customers transitioning during ERP upgrades.
• Parker Lane, Stifel: Asked if the TAM analysis influences go-to-market strategies. Collins stated the analysis reinforces confidence in current approaches, particularly community enablement and channel go-to-market strategies.
• Lachlan Brown, Redburn Atlantic: Sought insights on the impact of supply chain uncertainty and tariffs. Collins responded that SPS's solutions mitigate disruptions and remain mission-critical, with minimal exposure to macroeconomic headwinds.
• Nehal Chokshi, Northland Capital Markets: Asked about the applicability of North American go-to-market strategies in Europe. Collins highlighted early optimism but noted the need to address regional differences and power dynamics between retailers and suppliers in Europe.

Sentiment Analysis

• Analysts raised questions about the TAM analysis, international expansion, and wallet share growth, indicating cautious optimism but seeking more clarity on execution strategies. The tone was neutral to slightly positive.
• Management expressed confidence during prepared remarks and Q&A, frequently emphasizing growth opportunities and recent successes. CEO Collins conveyed confidence in the company's ability to capture market share, while CFO Nelson highlighted financial discipline and scalability.
• Compared to the previous quarter, analysts appeared more focused on the TAM update and its implications for future growth, while management maintained a consistent tone of optimism.

Quarter-over-Quarter Comparison

• Revenue growth accelerated slightly from Q3 2024, with recurring revenue maintaining a steady 19%-21% year-over-year increase.
• Guidance language shifted to include more explicit references to the $11.1 billion TAM and wallet share expansion opportunities.
• Analysts' focus moved from recent acquisitions to the broader market opportunity and customer segmentation.
• Management's tone remained confident, but there was increased emphasis on validating TAM assumptions and ensuring cross-selling success.

Risks and Concerns

• Analysts highlighted potential challenges in executing European expansion due to regional market dynamics and power imbalances between retailers and suppliers.
• Management acknowledged the need to integrate recent acquisitions effectively and capitalize on cross-selling opportunities.
• Supply chain uncertainty was noted as a potential risk but deemed manageable given SPS's mission-critical solutions.

Final Takeaway

SPS Commerce delivered strong Q4 2024 results, highlighted by 19% annual revenue growth and a robust 22%-24% adjusted EBITDA growth projection for 2025. The company unveiled an $11.1 billion TAM, underscoring significant wallet share expansion opportunities across customer segments. Recent acquisitions, including Carbon6 and SupplyPike, position SPS for long-term growth, supported by a strong cash position and scalable product portfolio. Management’s confidence in community enablement and cross-selling strategies was evident, with international expansion viewed as a promising but developing opportunity.

Read the full Earnings Call Transcript