SPS Commerce, Inc. (SPSC) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the SPS Commerce's Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Irmina Blaszczyk. Thank you. Please go ahead.

Thank you, Joanne. 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 Web site, spscommerce.com, and at the SEC's Web site, sec.gov. In addition, we are providing a historical datasheet for easy reference on our Investor Relations section of our Web site, 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 Web site, you will find additional disclosures regarding these non-GAAP and adjusted EBITDA 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. 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 in 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 drop ship orders filled through our network more than doubled as compared to pre-pandemic levels. We grew net new customer adds 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 US Foods, a leading food service distributor, to automate their supply chain, signing on more suppliers to transact EDI with US Foods during the initial weeks of engagement than they have on their own over the last 10 years. US 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 Drakes Supermarket, a leading grocery retailer in Australia, to electronically connect with their suppliers through vendor onboarding and directly supplying its 40 stores. EDI provided Drakes with the order and inventory visibility they need to manage their diverse spender 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 facemasks. 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 Valu and Pet Supermarket. As expansion and growth resulted in operational complexities, SPS' fulfillment helped to increase efficiency and accuracy for [CoBonds] [Ph], a growing retail company who runs more than 120 grocery, convenience, liquor, and other retail locations across the Midwest. We also implement order fulfillment order automation for Lily'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 pickup in-store, curbside pickup, and drop ship as preferred shopping methods, making order fulfillment more complex. Currently, over 600 retailers fulfilled 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 in 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 position and 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 Anne Sempowski Ward to our Board of Directors. Anne 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 her unique perspective, and then -- 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.

Thanks, Archie. We had a great fourth quarter. Revenue for the quarter was $83.3 million, a 15% increase over Q4 of last year, and represented our 80th consecutive quarter of revenue growth. Recurring revenue this quarter grew 15% year-over-year. Adjusted EBITDA increased 22% in the quarter, to $23 million. For the year, revenue was $312.6 million, a 12% increase, and recurring revenue grew 13%. The total number of recurring revenue customers increased 8% year-over-year, to approximately 33,150, and wallet share increased 6%. As a reminder, in December 2020, we announced the acquisition of Data Masons, which added approximately 500 customers to our network. Given the timing of the transaction, the acquisition added approximately $850,000 in revenue to our fourth quarter and full-year 2020 financial results. Recall that Data Masons' recurring revenue mix is approximately 50%. Adjusted EBITDA grew 25%, to $87 million. We ended the year with total cash in investments of $190 million. Now, turning to guidance, for the first quarter of 2021, we expect revenue to be in the range of $86.8 million to $87.8 million. For the full-year, we expect revenue to be in the range of $363 million to $366 million, representing approximately 16% to 17% growth over 2020. For the first quarter of 2021, we expect adjusted EBITDA to be in the range of $23.3 million to $24 million. For the full-year, we expect adjusted EBITDA to be in the range of $100 million to $102 million, representing 15% to 17% growth over 2020. For Q1 2021, we expect fully diluted earnings per share to be in the range of $0.18 to $0.19, 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 $0.36 to $0.37, with stock-based compensation expense of approximately $7 million, depreciation expense of approximately $4 million, and amortization expense of approximately $2.7 million. For the full-year 2021, we expect fully diluted earnings per share to be in the range of $0.87 to $0.91. We expect fully diluted weighted average shares outstanding of approximately 37.1 million shares. We expect non-GAAP diluted earnings per share to in the range of $1.58 to $1.62, with stock-based compensation expense of approximately $27 million. We expect depreciation expense of approximately $16 million. And we expect amortization expense for the year to be approximately $10.5 million. For the year, you should model approximately 30% effective tax rate calculated on GAAP pretax net earnings. In summary, SPS Commerce delivered strong fourth quarter and full-year 2020 results. With retail dynamics accelerating the shift to e-commerce and driving increased demand for EDI, we are excited about our growth opportunities across a multibillion-dollar TAM, while we continue to deliver strong operating leverage, targeting a long-term adjusted EBITDA margin of 35%. With that, I'd like to open the call to questions.

Thank you. [Operator Instructions] Your first question comes from Matt Pfau from William Blair. Please go ahead, your line is open.

Hey, thanks for taking my questions, guys, and congrats on the great results. Just wanted to ask on the Analytics product, I mean I guess again sort of back into the growth rate based on your commentary around the fulfillment product, but seems like that still hasn't recovered yet. When do you anticipate that to happen? And I guess in terms of the investment and updating supply chain technology at retailers and suppliers, when does Analytics get higher up on that priority list?

Yes, thanks, Matt. What we have seen is it is a discretionary spend, a highly valued discretionary spend. But unlike fulfillment where if you're going to do business with the retailers you have no choice but to use it, that's the way you receive your purchase orders. We're seeing some daylight. I think it's when the suppliers in particular have confidence in their level of spend that they have is the biggest criteria right now. And I think there's a growing confidence, but not feeling completely out of the woods. But again, still seeing phenomenal value when people are using it, and continue to have a ton of confidence in the long-term vision for Analytics, but I think it's really around when people have complete confidence we're through the pandemic.

Got it. And does increase in drop shipping or e-commerce as a percentage of retail impact that product one way or the other?

It really doesn't. It's a higher value in the stores, but it's a high value for inventory and some of the visibility. So the shift is not going to make it negative, it's just more a matter of priorities. And I would say that fulfillment, and drop ship, and other things we talked about in the fulfillment product have been a higher priority right now as retail has made a pretty drastic shift in the last 12 months of what they're doing and how they're doing it.

Great, thanks, guys. Appreciate it.

Your next question comes from Jason Celino from KeyBanc Capital. Please go ahead. Your line is open.

Hi, this is actually [Devon] [Ph] on for Jason. Thanks for taking our questions. First one I have is could you just talk about some of your customers that were in verticals that were more challenged, such as luxury goods and apparel. Have you seen any sort of improvement in terms of customer engagement and their willingness to spend towards the end of the quarter, and what are your expectations of these verticals in 2021?

Yes, as you mentioned, there are some industries that have been hurt, and we're not seeing yet a recovery. But just to state the obvious, if you're selling high-end clothing there's not a lot of events people are going to. There's not a lot of -- I'm not putting on a suit very often anymore. And so those continue to be hurting, and I think they're more in the hunker down mode at this time. I think there's other verticals that started out very weak and they completely turned around. An example is golf, where in April of last year there was -- courses were closed, and then they just came off their busiest summer ever. So I think there's been shifts vertical by vertical. But I think some of the high-end luxury it's been very slow.

Great, that's helpful, Archie. And then just one quick one on churn, any change in that during the quarter that's worth mentioning, and what are your expectations of closures and retail bankruptcies in your guidance for 2021? Thank you.

Sure, Devon. The churn stayed consistent, it's roughly 13% on an annual basis. We did not see an uptick or an increase in bankruptcies in Q4. Still to be determined in 2021 if there will be an increase in bankruptcies or not.

Your next question comes from Scott Berg from Needham. Please go ahead. Your line is open.

Hi, Archie and Kim. Congrats on a great quarter, and thanks for taking my questions. I guess we'll start off with, first of all, thanks for some of the additional disclosures around some of the traction in the business this year. The 27% increase in net new customers I think is an interesting data point. I guess as you guys look at that data point, were there any differences in the types of customers you're able to attract over the last nine to 10 months of the pandemic versus the business, say, over the last couple, three years before that?

Yes, I think there's a number of things. One, I do think we had a lot of success in the community enablement campaigns, and that was a bright spot. I think overall though, Scott, one thing we've reflected back on 2020, was drop ship, that was clearly a tailwind for us in 2020. But we actually, when we look at what's happened to us as a business for 2020, I think it's because of the foundation that we've laid over the last three, four years. We've talked in the past about our sales restructuring and changes in '17 and '18, which take time to take hold and really gain momentum. A few years back we announced a new fulfillment product that is clearly far and away the best in the industry, and I think that, followed with new go-to-market strategies in '19, I think really took hold. We started to see some really great success in digital marketing, where we've grown that -- our digital marketing lead generation to what is now a meaningful part of our business. And I think that, with the different things the customer success have done to become more customer-centric and help customers optimize the usage of the SPS product, is really what is driving the fulfillment product in 2020, and not the pandemic. Obviously, there was some tailwinds from the pandemic, but really excited about the investments we've made over the last three, four years.

Super helpful. So I guess kind of a continuation of that, strong changes that were well positioned to benefit from the last nine months, and 10 months, and take any pandemic impact out of it. How do you view pipelines kind of going forward in your opportunities? Do you have the same type of opportunity? Do you think that you've seen over the last 10 or 11 months with how you step that up, or is there any maybe nuance to changes within that view?

I think in general, overall, it's set up extremely well. I think the only big question is, "Has we come out of it?" I think drop ship will continue to be important, and will continue to grow. But I don't think we're going to have a non-precedented levels of growth as we did this year going forward. But I think what highlights -- what 2020 really highlighted is that SPS clearly plays in the brick-and-mortar, the e-commerce and the omnichannel space. And we're going to be there for the customer, however and wherever they go. So, our business might shift back some, but I think from an overall standpoint, we're a little bit indifferent and we're a little bit unique in the industry in that we serve that entire picture. And I think that's becoming a huge competitive advantage.

Excellent. If I sneak one more in here, Kim, I don't think I heard you give the organic kind of ARPU number in the quarter.

Yes, the Data Masons acquisition happened in just, it was literally like two weeks in Q4. So there's very nominal impact as it relates to the ARPU, the larger was the customer. So Data Masons added approximately 500 customers. And so you see that reflected in the Q4 as well as full-year customer count of 33,130.

Excellent. I'll jump back in the queue. Congrats again.

Your next question comes from Joe Vruwink from Baird. Please go ahead. Your line is open.

Great. Hi, everyone. Yes, I'm wondering when you think about all the different lead gen mechanisms you have your disposal. Can you maybe characterize which could be, I guess more incrementally important in 2021? So I'd imagine all are contributing, but is there any that maybe as the potential to drive in outside contribution for your growth in 2021?

Yes, I think it's a hard question. The fact that I think there is things that are becoming increasingly more important. The retail enablement campaigns are clearly our most important net new business, driver, but marketing and channel. Marketing has grown extremely well and channel continues to be extremely important and will be come even more important with the Data Masons acquisition. So on a relative standpoint, I think that I hate to say it, but it's all three are important. To us the long-term viability of the business is always adding that new customers and then a meaningful part of our sales in any given year, our continued growth within our customer base, but that's all predicated on continuing to add new customers, which we did an excellent job of that in 2020.

That's helpful Archie. Just on, I suppose the channel piece specifically, and I know one of the drivers of the Data Masons acquisition was the exposure to Microsoft, but as you go ERP by ERP, cloud migrations are happening with more regularity or at least all the ERP vendors are advocating that this happens. What's the right timeline to consider if an ERP cloud migration happens in the next quarter or two, do you tend to see the related decisions on syncing up order automation in a SaaS delivery mode to match the ERP? Does that come with some lag or is there any way to think about potential benefits accruing to SPS?

Yes, there is a slight leg. Well, there's two ways. We're part of an ERP sale. There are times when we're just bundled right at the front-end. That happens. And then there're other times where they make the ERP decision. The implementation for SPS is not as long as the ERP. So once they kick that off, then they bring in SPS commerce. What's really exciting where we are now as a business is there's oftentimes where there's two, three, four ERPs or different channel partners that are all buying for a supplier's business and we're in three or four bids. So I think, but typically we will be more often than not a slight laggard in that. And it's a natural. If you're going to move from a commerce based legacy ERP software system to a cloud-based, you are going to move to a cloud-based SaaS for your EDI as well. And obviously, we're well positioned for that. And that's one of the things we're really excited about with the Data Masons as I think it's going to be really -- we will not have to do the heavy lifting of moving them. We believe we'll trail behind Microsoft, who's doing an excellent job of moving customers to the cloud.

Okay. That's helpful. Thank you very much.

Your next question comes from Tom Roderick from Stifel. Please go ahead. Your line is open.

Great. Hi, Kim. Hi, Archie. Happy New Year. Thanks for taking my questions. Archie, I'm going to go back to the vertical, the vertical question earlier. I mean, there was a question around some of the luxury goods and the high end stuff and things that were weak. I'm going to ask you to spin that one around a little bit and perhaps highlight the changing nature of supply chains and how certain verticals you might have seen benefits from. I couldn't help notice a number of examples this quarter and last quarter on foods and grocery and convenience. Maybe you can talk a little bit about the dynamic of what's happening with where goods are coming from, how they're getting hung up, and then how they're ultimately getting to the consumer that might be driving enablement campaigns, additive products like curbside pickup, things like that. Just the way customers might be changing their role with you and the way that they lean on you.

Yes. I think one of the things we saw in 2020 is suppliers, some suppliers and some verticals just didn't have inventory to be able to supply their retailers. And therefore retailers really needed to be thoughtful and add new suppliers as alternatives. And that's where we were really well set up with our existing, especially with our existing partners, like a Costco, like a Loblaws, like a Walgreens, where we can onboard suppliers extremely quickly. Obviously, if you don't have a partner like SPS Commerce, you can add suppliers, but then the product is going to be -- you're going to end up emailing out at purchase order. There's not going to be a barcode label on the package because you haven't enabled the EDI and your whole distribution center is going to get more and efficient at a time when it's already under stress. So we did see that pocket where there were retailers looking for alternative sources. That was particularly in the Q2 period, probably not as much in the Q4 period. I mean that still happens, but that was really highlighted to our customers there. Grocery, I think, we've always had a decent practice in grocery, but I think again, one of the things that's happened in some of the reorganizations that Dan Juckniess did with the sales organization was really aligned people to different territories and I put different focus on things. And I think some of those -- well, not some of those, they are definitely those restructurings and whatnot are really starting to pay dividends and efficiency and focus. So I think that's one of the things that's happened as well.

Yes, that's really helpful. And Kim, just a crazy thing happened in the middle of the pandemic, you guys grew and you grew faster than maybe you would have expected. So now sitting here a year later, how do you think about the sales capacity you need to support the go to market motion as you start to look at some of this acceleration potential and the demand out there with the pipeline being what it is?

Yes. I think as we sit today, we have invested in the sales organization over the last few quarters. So we feel really good about the sales capacity of the sales organization going into 2021 mainly because of some hiring we did in the back half of 2020. And I think that one of the things that the sales organization is very, very good at is promoting from within which creates opportunities for people and then also training, so that we can get people up and running, especially when they're moving from a more junior role to a more senior role within the organization. They already know the SPS Commerce rope. So that organization is really well managed from that standpoint, but feel really good about the sales capacity as we sit today.

Great. Thank you, guys. I'll jump back in the queue. Congratulations.

Thank you.

Your next question comes from Mark Schappel from Benchmark. Please go ahead. Your line is open.

Hi, thank you for taking my question and a nice job on the quarter and year. So, first question here, Charlie, just building on an earlier question if I recall correctly, Data Masons had a relatively high percent of on-premise revenues in their mix. And now that you've had a month or two to get a better handle on their businesses, wonder if you could just comment a little bit on how long do you think it'll take to migrate the bulk of that on-premise base to your product and recurring stream subscriptions?

Yes, I think as we look at the Data Masons business, first off, everyday I look at it, the business gets better and better, primarily because the people at Data Masons, I think the strength of that team we're extremely impressed with, but I think when we look at the transformation from on-prem to a SaaS model, where they're really utilizing our retail network, we're going to trail Microsoft. So in other words, when a Microsoft customer moves from premise, to cloud-based, that's going to be the transformation point, as opposed to us pounding on the customer, trying to convince them and sell them to do that. I think that's going to happen over a period of years. But I think there'll be, Microsoft has a history of doing an extremely great job at this. I mean, all of us I think, for the most part had on-prem email five years ago, and I don't think anybody has on-prem email anymore. So you look at what Microsoft has done as a business. And this is a focus area for them. So I think it's, we're playing a follow Microsoft role here, which is a good spot to be.

Okay, great. Thanks. That's helpful. And then one follow-on question, and again, building on an earlier question here. The potential for retailer bankruptcies was something that was a real concern for the company throughout last year. And just based on what you saw in the quarter, I mean is that concern abated somewhat, in your view?

So we did not see an increase in bankruptcies in Q4. And do keep in mind that Q4 obviously, was the Holiday season as well. So we don't think we're necessarily out of the woods of that yet. Please, that we didn't see that in Q4, still to be determined as it relates to 2021, if we see an increase in bankruptcies or not.

Great, thank you.

Our next question comes from Jeff Van Rhee from Craig-Hallum Capital. Please go ahead, your line is open.

Great, thanks guys. This is Rudy on for Jeff. Archie, I was curious, I know, it's been about two months now on Data Masons, just curious what the progress has been thus far, and really anything that you guys have learned or discovered that maybe you didn't know going into that deal, you've come to realize so far?

Because we competed against Data Masons, because we partnered with Data Masons, because we knew the people, I mean, some of the relationships go back, literally 10 years. There weren't a lot of surprises, I'll tell you the only surprise, which I mentioned earlier is I think this is an extremely talented team, that we picked-up and so really excited about that. That would be the only piece that myself personally I've seen the team and what they can do, and they've I think it's been culturally a good fit. I think, I know the SPS Commerce employees have been thrilled with the acquisition, the Salesforce was extremely excited about the acquisition, and I think the Data Masons folks have embraced it and feel really good about everything that's going on there.

Great, that's helpful. And then I guess with respect to sort of this most, the 2020 cohort of customers, you guys brought on, obviously a very, very strong year for retailers in a very dynamic environment, with their suppliers. But I'm curious, just as you compare to call it the cohorts of the last couple of years, just what kind of changes have you seen with respect to verticals, the solutions you might be displacing, the number of connections that they have just curious what's different in sort of that 2020 cohort versus years past?

I think overall, it's generally the same. I think we've had more customers taken from competitors. I think when we look at our new business this year, there was a slightly higher percentage from net new logos, which I think is a positive, as I think the grocery was strong, e-commerce is extremely strong. But those are things that if you follow the retail, relative to retail, I think our position in e-commerce is probably a little bit overweighted compared to the industry, but a lot of these trends we do follow the industry again slightly stronger on the e-comm, I think one of the things with the e-comm is people are realizing suppliers and retailers that it's not an e-comm game. It's not a brick-and-mortar game. It's not an omnichannel game. You got to play all the games and that's that feeds right into our hands.

Got it. Very helpful. I'll jump back in the queue. Thanks.

Your next question comes from Pat Walravens from JMP Securities. Please go ahead. Your line is open.

Hi, this is [Mark] [Ph] on for Pat. Thank you so much for taking my question. I'm just wondering, could you give us an update on the cross border opportunity for 2021? And how should we think about international as a percentage of revenue or international momentum after that?

You're cutting out a little bit, was the question around the international opportunity?

Correct. Yes.

Yes. Okay. When we see the international opportunity, obviously when we think about it, we think about it in different areas. We think of North America as one. So just, I'm not going to discuss Canada. When we look at the different international opportunities Australia did, did well. We were a little higher in clothing and fashion there than we are in the U.S., so I would say it underperformed the U.S., but it had a strong year, especially on and it got some traction in obviously grocery and some others. So I think that bodes really well for that. Asia continues to be part of really the North America supply chain. We continue to see reasonable progress there, even with the trade war and everything else that didn't seem to have a meaningful impact plus or minus. And then, Europe, we primarily focused Europe on analytics, and as we've seen, the analytics product growth slow down. So that area, that from a geography, was weaker and that we'll follow back with analytics. Remember in 2019 exiting 2019 coming in at 2020, we were extremely bullish on analytics in particular in Europe coming off a small base, but it had super strong growth. So that was a weaker area following analytics.

That's very helpful. Thank you so much.

[Operator Instructions] Your next question comes from Nehal Chokshi from Northland Capital Markets. Please go ahead. Your line is open.

Thanks and congratulations on a really strong financial calendar '20, even excluding Data Masons. So, excluding Data Masons I think you're gaining to about 11% year-over-year gross for calendar '21 versus exiting calendar '20 had about 14% excluding Data Masons. So what's built into the expectation decelerating growth here?

So, what our 2021 guidance incorporates as the combined company, so obviously Data Masons is included in there as well. It takes into account what we've seen in 2020. So we certainly do have some strong momentum that we saw in fulfillment. It does take into account the fact that there still is some uncertainty as it relates to bankruptcies. And we've talked a little bit about that on this call that's still to be determined, if we're going to see an uptick there or not. It also takes into account the comment that Archie had made that we expect drop ship to remain strong, but not necessarily at that same level or that increase that we saw in 2020. So as it relates to e-commerce, we expect e-commerce will be a higher percentage of business than it was pre-pandemic. But some of the increase that occurred in 2020 that level or piece of that increase, we don't expect to remain at that level.

Okay, great. That's helpful. And then do you mind giving some color as far as to disaggregation between customer growth versus ARPU customer growth that's built in to 10% to 11% growth for counter '21, excluding Data Masons?

So, we going to total gap revenue, and then each quarter, when we announced our results, we then provide the level of how much is a customer growth. And how much is that average recurring revenue per recurring revenue customer? Similar to prior years, we do expect a nice, healthy mix of both to drive our overall recurring revenue growth.

Okay. And then you mentioned that 500 customers from Data Masons, but I think when you did the acquisition, you said that they were going to be bringing 450. So is it correct to say that Data Masons added 50 customers in the last two weeks of a quarter? And if so, did that surprise you?

No. The acquisition brought the same amount. The number was around 500.

Okay, all right. Thank you.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.