Thread by @bizalmanac

1/ Software swami @ericvishria offered, “There are a lot of really interesting SaaS and marketplace crossovers where you can…take elements of both business models to reinforce each other..." on ILTB #183, a great description of SPS Commerce,

https://twitter.com/InvestLikeBest/status/1286707971645480961?s=20

2/ SPSC is a cloud-hosted EDI software used by retailers, their suppliers and logistics providers. EDI, Electronic Data Interchange, is a set of common syntax that allow regular business transaction to be processed automatically, see details below

truecommerce.com/sites/default/…

3/ SPSC describes and demonstrates how their model benefits from network dynamics below. When a new supplier is on-boarded, they encourage their customers to join, who then invite more suppliers, leading to extremely low cost and high percentage of sales wins

4/ 78.5% of SPSC's revenues are from fulfillment services, their core EDI offering, which grew 15.4% pa from 2017-2019. Including Analytics and Other, 93.8% of revenues are recurring with the remainder from one-time revenues

5/ Since The Company IPO'd in 04/2010, recurring revenue customers have grown 10.7%, revenues by 22.6% and FCF/Shr. by 33.4% all 10Yr. CAGRs. FCF Margins and FCF / Invested Capital (Assets - Cash) were most recently 20.9% and 21.8%, evidencing a mature software business

6/ Archie Black has served as CEO since 2001 and James Frome, currently COO, joined in 2000. Executive Compensation is primarily based on TSR vs. the Russell 2000 index with a minority linked to revenues and Adj. EBITDA targets

tcbmag.com/honors/archie-…

7/The Company has spent 41.5% of Adj. EBITDA on acquisitions since IPO where they target businesses for their technologies or customers. As the current recession unfolds, SPSC may be able to purchase smaller competitors that do not survive

8/ Manhattan Associates, , and Descartes Systems, , qualify as comparable companies among U.S. listed businesses. SPSC is the smallest and has grown sales and FCF fastest among the group of three. They all trade for similar multiples of FCF

9/ Like many highly profitable software businesses growing double digits, SPSC trades for a rich valuation, currently 39.0 EV / EBITDA - Capex, a 5.4% premium to its 3Yr. Median and understated compared to a market price multiple due large cash holdings

10 / SPSC's churn metrics are high, about 13% on an annualized basis, reflecting the small skew of their customer roster. As of their last earnings release on 4/30/2020, The Company had not noticed customer bankruptcies (below) yet those may materialize in the coming months

11 / The Company's competitive landscape is challenging to assess as most of their competition are privately owned or offered as modules by legacy ERP software providers; IBM, MSFT, ORCL and SAP

G2 lists SPSC as the #2 EDI provider behind Mulesoft

learn.g2.com/what-is-edi

12 / Searching "EDI" within presentations, press releases and transcripts released by IBM, MSFT, ORCL and SAP since 2005, vertical bars below, shows how little attention EDI is afforded. Yet their customers are the stickiest, even if their metrics are opaque

h/t @Sentieo

13 / SPSC is a hybrid vertical market software and marketplace business with the best elements of both; recurring revenue and viral sales generation as customers encourage their trading partners and service providers to join, enhancing the platform for everbody!