SPSC Q2 2024: Q4 EPS seen at $1.15; gross margins to improve in Q3
- Acquisition Integration & Expanded Offering: The successful integration of the Traverse Systems acquisition is already delivering results by broadening SPS’s product portfolio and enabling more targeted engagement with retailers, potentially unlocking new revenue streams.
- Robust Community Enablement Campaigns: The firm’s strong pipeline from community enablement campaigns, resulting in increased wallet share among existing customers, underpins a repeatable growth driver and offers a solid expansion platform for the remainder of the year.
- Favorable ERP Refresh Cycle Dynamics: Ongoing ERP change-outs present an opportunity for SPS as customers transition to more modern, cloud-based platforms, which aligns well with SPS’s value proposition and may drive additional market adoption.
- Integration and monetization risk: The acquisition of Traverse Systems introduces a product aimed at a different customer base, which may add execution risk during integration and challenge the company's traditional supplier-focused revenue model.
- Retail market uncertainty: Investor questions highlighted ongoing uncertainty in the retail environment with supplier consolidations and macroeconomic pressures, which could dampen growth prospects.
- Weakening analytics revenue growth: The sequential slowdown in analytics revenue, partly due to customer consolidations, raises concerns about the sustainability of diversified revenue growth.
-
Q4 Earnings
Q: Earnings acceleration details Q4?
A: Management expects Q4 EBITDA acceleration with EPS near $1.15, driven by a front-loaded spending approach with no significant below‐the-line adjustments affecting earnings. -
Margin Outlook
Q: When will gross margins improve?
A: They expect gross margin improvements starting in Q3 as scaling investments and operational efficiencies begin to show, consistent with previous guidance. -
Customer Base
Q: Will lack of new customers hurt growth?
A: Despite limited net new additions, management is confident that their strong history of increasing wallet share among existing customers will sustain long-term growth. -
Acquisition Strategy
Q: How is Traverse integration progressing?
A: The new Traverse Systems acquisition is performing to expectations, expanding the go-to-market efforts by leveraging existing channels to address retailers’ needs. -
Customer Additions
Q: What is the trend in customer acquisitions?
A: A major enablement campaign from Q1 spilled into Q2, and the pipeline for later campaigns is expected to predominantly boost wallet share with existing customers. -
ERP Refresh
Q: What opportunity from ERP refresh cycles exists?
A: Upcoming ERP change-outs are seen as a chance for customers to switch to modern, cloud-based solutions, aligning well with SPS’s offerings. -
International Outlook
Q: How is European fulfillment performing?
A: The acquisition of TIE Kinetix has established a strong European beachhead, indicating a sizable market opportunity for fulfillment solutions overseas. -
Analytics Revenue
Q: Why did analytics revenue decline?
A: The sequential dip in analytics revenue was driven by some customer consolidations, though the future outlook remains positive with a healthy pipeline. -
Retail Market
Q: Is there more choppiness in retail tech?
A: Management notes that overall retail uncertainty persists, influenced by macroeconomic factors and supplier consolidation trends. -
SMB Churn
Q: How is SMB churn trending?
A: The churn in the SMB segment remains consistent with historical levels, showing no significant changes this quarter.
Research analysts covering SPS COMMERCE.