Thank you, Josh. Good afternoon, everyone, and thank you for joining us on SPS Commerce Third Quarter 2021 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, specifically our Form 10-K as well as our financial results press release for a more detailed description of the risk factors that 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 and 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 measures, including reconciliations of these measures with comparable GAAP measures. And with that, I will turn the call over to Archie.

Thanks, Irmina, and welcome, everyone. Ongoing momentum in e-commerce continues to drive demand for SPS' fulfillment solution, resulting in strong enablement campaign activity and another quarter of great execution. Total revenue grew 23% to $97.9 million, and recurring revenue grew 20%. Understanding evolving consumer trends is more imperative than ever. Retailers are expected to create a seamless and hassle-free shopping experience while offering extended aisle product assortment. This can only be accomplished with true omnichannel fulfillment, and SPS Commerce is uniquely positioned to support our customers as they conform to today's retail dynamics. Ruby Has, a fast-growing e-commerce fulfillment and logistics provider for direct-to-consumer brands and retailers, serves a range of customers to represent their products across all retail channels. Ruby Has integrates with SPS Commerce to access their customer systems, allowing for seamless order flow, inventory management and delivery. This partnership has proven to be invaluable for brands like Koio with 5 retail locations, wholesale partners and the majority of sales happening through their website. Koio relies on our strong partnership to ensure they're not just meeting but exceeding customer expectations when it comes to a quick, simple order and delivery experience. Evolving retail dynamics are also prompting brands to migrate their on-premise solution to a cloud ERP, which impacts EDI operations. Hello Bello is a family and baby product company making plant-based premium products at non-premium prices. Co-founded by Dax Shepard and Kristen Bell, the brand was transitioning to a cloud ERP and selected Microsoft Dynamics 365 to prepare and meet the operational needs of current and future growth. Having signed a 1-year exclusive contract with Walmart, they had only weeks to get up and running with an EDI solution that was fully integrated with their new ERP to ensure their operations could handle the expected volume. Thanks to SPS' strong network and our retailer experience, combined with the Data Masons expertise and Microsoft ERP integration, Hello Bello went from sign to go live in a matter of weeks, demonstrating how our joint solution accelerates implementation timelines. Buc-ee's, a gas station and convenience retailer with approximately 40 stores across the U.S., recently announced the groundbreaking of the world's largest convenience store and family travel center. With a growing number of locations, the company is looking to increase efficiencies through the supply chain by improving visibility into shipments and inventory. In conjunction with an ERP update, Buc-ee's is looking to automate order fulfillment across all their vendors and chose SPS Commerce for their EDI solution. As the retail landscape continues to evolve, SPS Commerce is expanding its global market leadership in providing the easiest-to-use, full-service solutions that help retailers work efficiently with their suppliers. Our network, world-class technologies and partnerships continue to deliver and exceed our customers' expectations as they transition to a true omnichannel fulfillment model. With that, I'll turn it over to Kim to discuss our financial results.

Thanks, Archie. We delivered a strong third quarter of 2021. Revenue was $97.9 million, a 23% increase over Q3 of last year and represented our 83rd consecutive quarter of revenue growth. Recurring revenue this quarter grew 20% year-over-year. The total number of recurring revenue customers increased 10% year-over-year to approximately 35,400 and wallet share increased 10% to approximately 10,350. For the quarter, adjusted EBITDA grew 14% to $26.5 million compared to $23.2 million in Q3 of last year. We ended the quarter with total cash and investments of approximately $252 million. In addition, as our current stock buyback program is expiring on November 2, 2021, the Board of Directors has authorized a new program to repurchase up to $50 million of common stock. The program becomes effective on November 28, 2021 and is expected to expire on November 28, 2023. Now turning to guidance. For the fourth quarter of 2021, we expect revenue to be in the range of $99.9 million to $100.5 million. We expect adjusted EBITDA to be in the range of $26.3 million to $26.8 million. We expect fully diluted earnings per share to be in the range of $0.24 to $0.25 with fully diluted weighted average shares outstanding of approximately 37.3 million shares. We expect non-GAAP diluted earnings per share to be in the range of $0.41 to $0.42, with stock-based compensation expense of approximately $6.5 million, depreciation expense of approximately $4.1 million and amortization expense of approximately $2.5 million. For the full year, we expect revenue to be in the range of $382.4 million to $383 million, representing 22% to 23% growth over 2020. We expect adjusted EBITDA to be in the range of $105.6 million to $106.1 million, representing 21% to 22% growth over 2020. We expect fully diluted earnings per share to be in the range of $1.10 to $1.11 with fully diluted weighted average shares outstanding of approximately 37 million shares. We expect non-GAAP diluted earnings per share to be in the range of $1.76 to $1.77, with stock-based compensation expense of approximately $27.8 million, depreciation expense of approximately $15.1 million and amortization expense for the year of approximately $10.2 million. For the remainder of the year, on a quarterly basis, investors should model a 30% effective tax rate calculated on GAAP pretax net earnings. Beyond 2021, we continue to believe that e-commerce dynamics will fuel strong momentum in fulfillment for the foreseeable future, and we maintain our annual revenue growth expectations of 15% or greater. We will provide detailed 2022 guidance on our Q4 earnings call. But for modeling purposes, we expect to deliver $124 million to $126 million in annual adjusted EBITDA in 2022. Beyond 2022, we expect adjusted EBITDA dollar growth of 15% to 25% as we continue to 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, with strong momentum in fulfillment and large growth opportunities for our analytics solution as retailers and suppliers continue to improve efficiencies across the supply chain, we believe SPS Commerce is well positioned to capitalize on a multi-billion-dollar addressable market in front of us. And with that, I'd like to open the call to questions.

Our first question comes from Matt Pfau with William Blair.

Archie, the customer examples that you gave seem to have a similar theme where they're all sort of driven by an ERP replacement. Just wondering, are you seeing an uptick in ERP replacement and specifically maybe on the Microsoft Cloud Dynamics part, is that upticking as well and helping out the Data Masons business there?

Yes, we have noticed a slight increase overall in the transition to cloud ERPs. Our partnership with Data Masons has allowed us to engage more deeply in the Microsoft market, and we are seeing significant momentum as Microsoft advances its cloud initiatives. This shift is providing us with strong momentum. Similar to our experience after the MAPADOC acquisition, we are finding that we can deliver better results for our customers, achieve a higher win rate, and be in a more favorable position to secure deals by working together rather than as two separate entities. The rationale behind acquiring Data Masons is clearly proving to be effective.

Got it. And just to follow-up on that. Outside of the Microsoft ecosystem or maybe even including that, are those ERP replacement deals driven primarily by partners? Or is that an internal sales force that’s increasingly driving those deals?

I would say it's both. We continue to have strong channel partners, but we’re also closing deals directly. It can come from the ERP through value-added resellers and systems integrators or directly. I would say all of these avenues are very important to the sales process.

Our next question comes from Scott Berg with Needham & Company.

Archie and Kim, congratulations on a strong sales quarter. The customer additions were impressive. My first question is for you, Archie. Over the past 90 days since your last call, many investors have been asking about how much the improved e-commerce environment from the pandemic is helping your business. It seems like there is at least some incremental change, whether through drop shipping or retailers needing more vendors. However, we've seen two major e-commerce players, Shopify and Amazon, report disappointing sales in their e-commerce segments. It's reasonable to anticipate a slowdown in e-commerce as we move forward from the pandemic. Do you think the shift of customers from online to offline in the current macro environment might influence your outlook on demand for your products in the coming years?

Thanks, Scott. When we consider the retail landscape, it is clearly transitioning to a true omnichannel approach. Previously, it was more about e-commerce and physical stores operating separately. Now, we see a much more integrated model where drop shipping and in-store pickups are becoming commonplace, and customers are seeking an omnichannel experience. We feel well-positioned as a company to provide this for our customers. It's advantageous to operate in both areas; when one sees a decline, the other may rise. We had anticipated a long-term acceleration in e-commerce, which spiked during the onset of the pandemic, but it is now returning to historical levels, while we are noticing a rebound in physical store sales. Our focus is on the significance of omnichannel, as retailers understand the necessity to adapt to both environments. Ultimately, omnichannel is about enabling consumers to purchase whenever and wherever they choose, and that's how we envision it.

All right. And then from a follow-up perspective, on the new share repurchase program, I guess, it's not a surprise since you've had one in place before. But how should we think about capital allocation and your general kind of M&A strategy going forward? You're a bigger company today than what you were 3 or 4 years ago, obviously, you're throwing out better cash levels. Is there an opportunity to maybe see a larger, more transformative type of acquisition at some time, whether you're consolidating the market or something else versus some of the bite-sized kind of acquisitions that have been smart? They've obviously handled the business properly, but they've been smaller in size.

Sure, there are two questions here. I'll start with capital allocation and then we can delve into M&A. From a capital allocation standpoint, the Board reviews this regularly. As a company, we're generating positive cash flow, and there are opportunities where we can deploy capital, including stock buybacks and M&A opportunities. Nothing new here, just reiterating our approach to capital allocation. Regarding M&A, we are actively seeking acquisitions, primarily within the retail space where a network exists and in Software as a Service. We have pursued various types of acquisitions, including customer roll-ups, geographic expansion, and more recently, product-focused acquisitions. We believe there are still opportunities in each of these areas. We'll continue to evaluate what makes sense for us. We are confident in our leadership position and while we are not pressured to make acquisitions, we do have the capital available and will proceed with acquisitions if they align with our business and financial goals.

Congrats on the great quarter again.

Our next question comes from Jeff Van Rhee with Craig-Hallum.

Just a couple for me. I think, Kim, just to start with the gross margins, it dipped down. I don't recall, I think you had guided a few things were going to change there last quarter, just update me on gross margins. What hit it in the quarter and how to think about it next few quarters?

Sure. Yes, to your point, last quarter, we had mentioned when we provided our expectations for EBITDA for the quarter and for the full year, we had said that based on the strong fulfillment momentum as well as the great customer adds that we've been seeing that we would be investing in a couple of different areas in the business, specific in Q3, really focused on the customer experience or customer success side. And what's great in the quarter is we had lots of opportunity to get great talent on board and make sure that we are hiring and retaining great talent on the customer experience to help us get our customers up and running and getting value just as quickly as possible. We also made a comment that we would be adding sales resources, particularly as we think into 2022. And that last part has been taken into account relative to our guidance that we just gave for Q4 2021.

And just directionally, how do you think about Q3 to Q4?

In terms of gross margins, we typically provide EBITDA figures, which you can use to infer the implied EBITDA margin. Although we do not usually disclose specific details for a quarter, our actual results will be available. More generally, I can assure you that we will continue to invest wisely in both the short term and long term. Our commitment to maintaining a remarkable customer experience remains a priority, aiming to delight our customers and exceed their expectations. Looking ahead, we still anticipate that gross margins will remain at least in the low 70s.

Okay. That's it. And then just, I guess, at a higher level, though, on the quarter, I think you've talked about the carrier services product and certainly with the network you've got in place, it just always has felt there's a lot of room to cross-sell into this base other incremental capabilities. So I guess 2 questions. Just what have you seen in terms of the uptake on the carrier services product? And how do you think about the evolution of incremental products to introduce into the customer base, sort of steady as we go? Will we see any acceleration? Just what does the pipeline of new product look like? So I guess 2 questions embedded in there.

Yes, we've made a good start with carrier service. We recently announced an expansion of that service through our partnership with C.H. Robinson, a company we consider to be world-class. This partnership allows us to tap into a broader segment of the carrier service market, where we expect to see continued growth. We are excited about the potential to expand our total addressable market and add new services. While I don’t expect a significant acceleration in 2022, there are opportunities for us to buy, build, and partner with other companies to enhance these services. In cases like C.H. Robinson, which is a large and successful company, we'll focus on partnerships rather than acquisitions. However, there will be other opportunities in the future for acquisitions and building initiatives. We are very optimistic about our direction in this area.

Yes. Fair enough. And 1 brief last for me, if I could, then just as it relates to the overall logistical mess going on in the country ports and otherwise. How is that reflecting in terms of your pipeline or interest levels in your products, if it is at all?

It’s something we’ve talked about. I think there are 2 things that we consider almost a deal-by-deal headwind or tailwind, Jeff. One is inventory – more along the line of what we call inventory challenges. Can they get inventory? And that can, in some cases, accelerate deals and in some cases, decelerate or slow down deals. It’s almost a case by case. So actually, when we think of 2022, we didn’t put it in the headwinds. We didn’t put it in the tailwinds. First time in my career, we actually had a section called headwinds, tailwinds deal by deal. The other is labor within our customer base. They’re ready to move. We will save them labor, but do they have the resources to move it forward? So those are 2 things that on a deal-by-deal basis are actually sometimes helping us and sometimes negatively affecting us.

Our next question comes from Jason Celino with KeyBanc Capital Markets.

Great. Maybe 1 for Archie. Drop ship, it's been an important area of strength. And it's interesting this week to see some private funding for some other EDI vendors looking to enhance their drop-ship capabilities, certainly validates some of the tailwinds that you've been talking about. But maybe as it relates to competition, how do you see the competitive environment today for drop ship? And maybe where do you see it going?

Our competitive edge lies in our extensive retail network of 3,000 retailers, which is our primary advantage and will take time for others to replicate. Building those relationships with retailers is a complex task. Additionally, we have developed user-friendly technology over the past 20 years. Another key strength is our lead generation capabilities, allowing us to onboard suppliers quickly for retailers and generate thousands of leads at a pace much faster than industry standards. The market is shifting towards an omnichannel approach, with retailers utilizing both wholesale and e-commerce strategies. Many find it challenging to manage both effectively. Those who are capitalizing on omnichannel strategies are positioning their brick-and-mortar stores as distribution centers, which plays to our strengths. It's important to recognize that the drop-shipping model is nuanced and varies from SKU to SKU, making it dynamic and adaptable month by month. This agility in our operations is what excites us and contributes to our strong market positioning.

Interesting. Yes, makes sense. And then maybe one quick one for Kim. I mean you talked about it a little bit, bringing on some great talent in third quarter. But how are you feeling about sales productivity heading into next year? I know it's a tough hiring environment for every company at the moment. Just curious how you guys are feeling.

Yes. So we have a great sales force, and we'll continue to add resources that will give us even more capacity. So feeling really good going into 2022. And again, we have a lot of visibility of the opportunity that we see ahead of us in 2022. So we'll make sure that we have, again, great already internal talent, but then we will be adding additional resources to help us maintain the capacity based on the opportunities that we see there. There's still opportunity for us to get even more efficient in that area. But a lot of the work that has been done over the last few years has set the team up very well. But again, we will be adding some resources in Q4 based on the opportunities that we see in 2022.

Our next question comes from Joe Vruwink with Baird.

I am unsure how the Vruwink house would react if Hello Bello faced challenges, so I appreciate your support. I'll start with the initial EBITDA outlook for next year, indicating an 18% growth. Given a growth framework of 15% to 25%, does the 18% suggest that next year might involve higher investments? If that is the case, could this also affect revenue growth? Do you anticipate being able to invest and possibly accelerate top-line growth within the scope of 2022?

When we look back at the previous quarter, we shared our belief that we can achieve top-line growth of 15% or more for the foreseeable future. We also anticipate that our EBITDA dollar growth will fall between 15% and 25% year-over-year. Previously, we indicated a growth rate around 20%, but we've now broadened that range to account for the excellent progress we've made in fulfillment, particularly in connection with our omnichannel strategy discussed earlier in this call. As we add new customers and enhance our services, it's essential to ensure we have the right resources to not just meet but exceed customer expectations. This focus will influence our spending in the latter half of 2021, as we aim to keep pace with the momentum we've experienced. Consequently, you might see growth skew towards the lower end of the range, closer to 15%, while in certain years, it could reach the upper limit of 25%. This reflects the scaling opportunities ahead of us. Looking at 2022, our expectations incorporate the investments we're making to ensure we cater to the influx of new customers and the promising opportunities we anticipate. We'll commit to short-term investments as well as those that yield long-term benefits. As a result, you'll likely observe growth leaning towards the lower part of that range rather than the higher end based on what we discussed in this earnings call.

Okay. That's good context. My second question, it's the second quarter in a row that analytics grew at a double-digit pace. Is there maybe some building momentum? Or can you maybe speak to its double-digit growth? Maybe you don't want to underwrite this as a new baseline going forward. But has something changed in terms of the conversation you're having with customers or the traction you're seeing in the marketplace?

Yes. I think overall, I mean, to remind everybody where we were going into the pandemic, we were feeling really good about analytics, and we had a fair amount of momentum exiting 2019. And then as we thought it would, analytics got hit significantly harder. And then we also had some relief we gave to customers in Q2 and Q3. So we have some degree of lapping easier comps, but we clearly see momentum within the analytics team and the analytics group and feel pretty good. Again, we've always felt good about the product long term, but we're starting to see some momentum in that product and feel good that it's starting to carry more of its weight. And I think the team is executing extremely well from both the sales side but also the customer success side and the technology side.

Our next question comes from Mark Schappel with Loop Capital.

Archie, starting with you, going back to the recently announced partnership with C.H. Robinson, I was wondering if you could just provide some additional color around how you'll be working together. What was C.H. Robinson doing before SPS Commerce? Were they using another EDI vendor with some manual process? Maybe you could just shed some light on that.

Yes. In most cases, it was outside their EDI process for customers. For example, customers utilizing C.H. Robinson and SPS Commerce were not integrated. They couldn't access C.H. Robinson's APIs and network without leaving the SPS Commerce platform. This partnership now provides customers with an integrated experience, allowing quick and easy access to C.H. Robinson, which enhances our carrier service. While they may not be prominent in the small package area, they excel in the LTL sector, where we believe they are a top-tier company. This partnership offers a significant advantage to our customers, serves as a revenue generator, and has positive implications for them. We are grateful for the strong support from C.H. Robinson.

Our next question comes from Nehal Chokshi with Northland Capital.

Great quarter, again. Staying on Data Masons, have you seen some success in converting some of that nonrecurring into recurring revenue?

Well, yes, absolutely. And the nice thing about the acquisition, which we speculate would be the case, is as opposed to convincing somebody that they ought to do it differently, Microsoft is really leading the charge. So it just becomes a natural change event when somebody moves from the Microsoft on-premise to D365, it becomes a natural time for them to convert into recurring revenue in the full service solution at SPS Commerce. And that is happening as we speculated.

Overall revenue growth slowed from 25% year-over-year to 23% from June to September, while recurring revenue increased from 18% to 20%. Is the shift from nonrecurring to recurring revenue primarily driven by the success with Data Masons, or are there other factors at play as well?

To reiterate the numbers, the GAAP revenue was 25% last quarter and 23% this quarter. The recurring revenue was 22% last quarter and 20% this quarter. The 18% figure you mentioned was from Q1. One reason for the decrease from 25% to 23% and from 22% to 20% relates to year-over-year comparisons. Last year, Q3 was when we observed a significant acceleration in fulfillment, and now we are comparing against that quarter.

Got it. Understood. And then you had, I think, the strongest customer add quarter on an organic basis ever, and it continues to accelerate. Each quarter, it continues to be even better. What is the driver behind that again?

Sure. So if you look at the last, I believe, 4 quarters, you've seen nice customer adds. And this quarter, to your point, is the highest from a, call it, that organic growth perspective. The reasons for that really have to do with that community enablement campaigns. So it's where we have relationships with retailers and we're really helping them do something different and we roll that out to the vendor community. And so Q3 was another strong quarter of community enablement activity.

Our next question comes from Parker Lane with Stifel. Sure. So if you look at the last, I believe, 4 quarters, you've seen nice customer ads. And this quarter, to your point, is the highest from an organic growth perspective. The reasons for that really have to do with the community enablement campaigns. So it's where we have relationships with retailers and we're really helping them do something different, and we roll that out to the vendor community. And so Q3 was another strong quarter of community enablement activity.

Kim, Archie, it's Max Osnowitz on for Parker. I just want to start thinking about that 200,000 potential supplier figure that's been thrown around in the past. How has that changed since the number of suppliers maybe has gone up or down with the rise of drop shipping in e-commerce and even direct-to-consumer over the last couple of years?

Yes, we believe our total addressable market is significantly larger, mainly because we can engage with non-EDI retailers as well. For suppliers, one of our major initiatives is to ensure we capture all their orders, regardless of the method, enabling them to take advantage of our additional services. For example, while our carrier service seamlessly integrates with EDI retailers through ASN, it is crucial that we also account for orders from non-EDI retailers. We expect this area to continue growing, and the number of suppliers collaborating with retailers is also on the rise.

Got it. And then just following up on someone's question a little earlier about analytics and kind of the uptick of customers considering it once again. Is there any other technology priorities that you're seeing that are coming along with that analytics thought process? Or is it mostly just analytics?

Analytics is becoming increasingly important for retailers as their stores transition into distribution centers. Suppliers must ensure they are effectively partnering to position the right inventory in the right stores since these locations are integral to the e-commerce model. It’s essential not just to have inventory, but to have it in the appropriate places. Many retailers can facilitate same-day or overnight delivery quite efficiently from their stores. Therefore, we believe that the role of analytics will grow as we continue to navigate a more omnichannel environment.

Thank you. And I'm not showing any further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.