SPS Commerce, Inc.

Ladies and gentlemen, thank you for standing by and welcome to SPS Commerce's Q4 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Romina Blaszczak. Thank you. Please go ahead.

Thank you, Julian. Good afternoon, everyone, and thank you for joining us on SPS Commerce fourth quarter and full year 2020 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 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 gap measures. And with that, I will turn the call over to Archie.

Thanks, Hermina, and welcome, everyone. We delivered strong fourth quarter results and full year 2020 results. I'm incredibly proud of what we have accomplished this year despite the challenging environment. The pandemic impacted business operations across industries around the globe, forcing us all to adapt. In the retail space, supply chain disruptions are fast-tracking the digital transformation. To protect business continuity and future-proof operations, retailers are expanding their supplier networks and asking trading partners to implement or improve e-commerce capabilities. In addition to changing consumer preferences, these dynamics resulted in an acceleration in demand for EDI, driving strong momentum and fulfillment. For the full year, revenue grew 12% to $312.6 million, and recurring revenue grew 13%. Adjusted EBITDA grew 25% to $87 million. Our consistent focus on profitability resulted in adjusted EBITDA margins of 28% in 2020, up from 25% in 2019, and 21% in 2018. In addition to our strong financial performance, I'd like to call out several notable highlights. We achieved 16% year-over-year organic growth in fulfillment in the fourth quarter, a three-point increase from the first quarter of 2020. Volume of dropship orders filled through our network more than doubled as compared to pre-pandemic levels. We grew net new customer ads by 27% in 2020, which excludes the recent data Masons acquisition. The dynamics impacting the retail space drove a steady volume of enablement campaigns throughout the year across various industries. We engaged with U.S. Foods, a leading food service distributor, to automate their supply chain, signing on more suppliers to transact EDI with U.S. Foods during the initial weeks of engagement than they have on their own over the last 10 years. U.S. Foods also leveraged the SPS network to form grocery sector partnerships, enabling it to deliver products directly to retailers, distribution centers, or stores. We helped Drake Supermarket, a leading grocery retailer in Australia, to electronically connect with their suppliers through vendor onboarding and directly supplying its 40 stores. EDI provided Drake's with order and inventory visibility they need to manage a diverse vendor community and keep shelves stocked. Throughout the pandemic, we helped many retailers expand their multi-channel sourcing strategy to meet increasing demand. Costco, for example, relied on us to add approximately 200 new vendors to their network in a matter of weeks when the pandemic started. And SPS was able to have new vendors up and running to fill Costco's orders within hours. We worked with Walgreens, onboarding new critical suppliers of essential products, such as face masks. With our full service and same-day onboarding capabilities, SPS was able to increase speed to market for a variety of critical products from new suppliers. We engaged with Pet Retail Brands, a parent company to two of the top five pet stores in North America, to create one consolidated EDI system that can handle EDI transactions for pet value and pet supermarkets. As expansion and growth resulted in operational complexities, SPS's fulfillment helped to increase efficiency and accuracy for Colborns, a growing retail company who runs more than 120 grocery, convenience, liquor, and other retail locations across the Midwest. We also implemented order fulfillment, order automation for Lilly's Sweets, a chocolate producer to keep up with growing demand as the company's business more than doubled in two years. In addition to helping our customers in their digital transformation, we also provide logistical support. Consumers have embraced buy online, pick up in store, curbside pickup, and drop ship as preferred shopping methods, making order fulfillment more complex. Currently, over 600 retailers fulfill drop ship orders through the SPS network. To support customers who book shipments themselves, SPS introduced shipping solutions like ShipStation and Carrier Service. To help the brands who ship on behalf of retailers and their e-commerce retail stores, SPS Commerce joined forces with our partner, ShipFusion, who has multiple fully managed and operated fulfillment centers across the U.S. and Canada, giving brands the best tools possible for building a successful e-commerce operation. To expand our leadership of position in fulfillment system automation, we acquired Data Masons in December of last year to offer unmatched trading partner and system expertise for customers using Microsoft solutions. Combined, we have numerous partnerships in the Microsoft community that will extend SPS Commerce's leadership in this market. Over the years, our acquisitions have solidified our leadership position across key market segments, including Oracle, Sage, SAP, and now Microsoft. As we enter 2021, SPS is well positioned to continue its critical role of driving efficiency in the retail supply chain. We remain committed to supporting our customers through their digital transformation as we all work together to improve the e-commerce experience for trading partners and consumers. I would like to thank all of our employees for their dedication to the company, our customers, and our communities. Before I turn the call over to Kim, I'd like to highlight the appointment of Ann Sempeski-Ward to our Board of Directors. Ann joined our Board in November of last year. She brings more than 28 years of industry expertise with high-growth brands, and her leadership roles across retail companies of all sizes bring a unique perspective and one that we are honored to have influencing the future of SPS. With that, I'll turn it over to Kim to discuss our financial results.