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SPS COMMERCE INC - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended: March 31, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from              to             

Commission file number 001-34702

SPS COMMERCE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

41-2015127

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

333 South Seventh Street, Suite 1000, Minneapolis, MN 55402

(Address of principal executive offices, including Zip Code)

(612) 435-9400

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

Common Stock, par value $0.001 per share

 

SPSC

 

The Nasdaq Stock Market LLC (Nasdaq Global Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at April 21, 2022 was 36,095,129 shares.

 


Table of Contents

 

 

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows  

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

23

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24

 

 

 

 

 

Item 1A.

 

Risk Factors

 

24

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

24

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

24

 

 

 

 

 

Item 5.

 

Other Information

 

24

 

 

 

 

 

Item 6.

 

Exhibits

 

25

 

 

 

 

 

SIGNATURES

 

26

 

Unless the context otherwise requires, for purposes of the Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” the “Company,” “SPS,” and “SPS Commerce” refer to SPS Commerce, Inc.


 

    SPS COMMERCE, INC.

2

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

PART I. – FINANCIAL INFORMATION

Item 1.Financial Statements

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

December 31,

 

(in thousands, except shares)

 

2022

 

 

2021

 

ASSETS

 

(unaudited)

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

203,088

 

 

$

207,552

 

Short-term investments

 

 

39,968

 

 

 

49,758

 

Accounts receivable

 

 

43,065

 

 

 

38,811

 

Allowance for credit losses

 

 

(4,287

)

 

 

(4,249

)

Accounts receivable, net

 

 

38,778

 

 

 

34,562

 

Deferred costs

 

 

46,710

 

 

 

44,529

 

Other assets

 

 

22,923

 

 

 

16,042

 

Total current assets

 

 

351,467

 

 

 

352,443

 

Property and equipment, net

 

 

32,261

 

 

 

31,901

 

Operating lease right-of-use assets

 

 

10,248

 

 

 

10,851

 

Goodwill

 

 

144,162

 

 

 

143,663

 

Intangible assets, net

 

 

56,158

 

 

 

58,587

 

Other assets

 

 

 

 

 

 

 

 

Deferred costs, non-current

 

 

15,900

 

 

 

15,191

 

Deferred income tax assets

 

 

199

 

 

 

182

 

Other assets, non-current

 

 

2,913

 

 

 

3,028

 

Total assets

 

$

613,308

 

 

$

615,846

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,731

 

 

$

8,330

 

Accrued compensation

 

 

21,930

 

 

 

31,661

 

Accrued expenses

 

 

6,632

 

 

 

8,345

 

Deferred revenue

 

 

56,798

 

 

 

50,428

 

Operating lease liabilities

 

 

4,337

 

 

 

4,108

 

Total current liabilities

 

 

94,428

 

 

 

102,872

 

Other liabilities

 

 

 

 

 

 

 

 

Deferred revenue, non-current

 

 

5,123

 

 

 

5,144

 

Operating lease liabilities, non-current

 

 

15,338

 

 

 

16,426

 

Deferred income tax liabilities

 

 

6,898

 

 

 

7,145

 

Total liabilities

 

 

121,787

 

 

 

131,587

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 110,000,000 shares authorized; 38,031,415 and 37,798,610 shares issued; and 36,120,518 and 36,009,257 shares outstanding, respectively

 

 

38

 

 

 

38

 

Treasury Stock, at cost; 1,910,897 and 1,789,353 shares, respectively

 

 

(100,903

)

 

 

(85,677

)

Additional paid-in capital

 

 

442,405

 

 

 

433,258

 

Retained earnings

 

 

150,690

 

 

 

138,087

 

Accumulated other comprehensive loss

 

 

(709

)

 

 

(1,447

)

Total stockholders’ equity

 

 

491,521

 

 

 

484,259

 

Total liabilities and stockholders’ equity

 

$

613,308

 

 

$

615,846

 

 

See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

3

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except per share amounts) (unaudited)

 

2022

 

 

2021

 

Revenues

 

$

105,193

 

 

$

90,094

 

Cost of revenues

 

 

35,389

 

 

 

29,970

 

Gross profit

 

 

69,804

 

 

 

60,124

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

24,655

 

 

 

21,355

 

Research and development

 

 

10,701

 

 

 

8,706

 

General and administrative

 

 

15,468

 

 

 

14,737

 

Amortization of intangible assets

 

 

2,470

 

 

 

2,664

 

Total operating expenses

 

 

53,294

 

 

 

47,462

 

Income from operations

 

 

16,510

 

 

 

12,662

 

Other income (expense), net

 

 

423

 

 

 

(325

)

Income before income taxes

 

 

16,933

 

 

 

12,337

 

Income tax expense

 

 

4,330

 

 

 

2,137

 

Net income

 

$

12,603

 

 

$

10,200

 

Other comprehensive income

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

730

 

 

 

192

 

Unrealized loss on investments, net of tax of ($1) and ($15)

 

 

(3

)

 

 

(45

)

Reclassification of loss on investments into earnings, net of tax of $4 and $19

 

 

11

 

 

 

57

 

Total other comprehensive income

 

 

738

 

 

 

204

 

Comprehensive income

 

$

13,341

 

 

$

10,404

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

 

$

0.29

 

Diluted

 

$

0.34

 

 

$

0.28

 

 

 

 

 

 

 

 

 

 

Weighted average common shares used to compute net income per share

 

 

 

 

 

 

 

 

Basic

 

 

36,136

 

 

 

35,751

 

Diluted

 

 

36,989

 

 

 

36,722

 

 

 See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

4

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

(in thousands, except shares) (unaudited)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balances, December 31, 2020

 

 

35,487,217

 

 

$

37

 

 

 

1,613,250

 

 

$

(65,247

)

 

$

393,462

 

 

$

93,490

 

 

$

(1,021

)

 

$

420,721

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,491

 

 

 

 

 

 

 

 

 

6,491

 

Shares issued pursuant to stock awards

 

 

372,746

 

 

 

 

 

 

 

 

 

 

 

 

2,802

 

 

 

 

 

 

 

 

 

2,802

 

Employee stock purchase plan activity

 

 

1,621

 

 

 

 

 

 

 

 

 

 

 

 

105

 

 

 

 

 

 

 

 

 

105

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,200

 

 

 

 

 

 

10,200

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

192

 

 

 

192

 

Unrealized loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

(45

)

Reclassification of loss on investments into earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

57

 

Balances, March 31, 2021

 

 

35,861,584

 

 

$

37

 

 

 

1,613,250

 

 

$

(65,247

)

 

$

402,860

 

 

$

103,690

 

 

$

(817

)

 

$

440,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2021

 

 

36,009,257

 

 

$

38

 

 

 

1,789,353

 

 

$

(85,677

)

 

$

433,258

 

 

$

138,087

 

 

$

(1,447

)

 

$

484,259

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,496

 

 

 

 

 

 

 

 

 

8,496

 

Shares issued pursuant to stock awards

 

 

231,107

 

 

 

 

 

 

 

 

 

 

 

 

504

 

 

 

 

 

 

 

 

 

504

 

Employee stock purchase plan activity

 

 

1,698

 

 

 

 

 

 

 

 

 

 

 

 

147

 

 

 

 

 

 

 

 

 

147

 

Repurchases of common stock

 

 

(121,544

)

 

 

 

 

 

121,544

 

 

 

(15,226

)

 

 

 

 

 

 

 

 

 

 

 

(15,226

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,603

 

 

 

 

 

 

12,603

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

730

 

 

 

730

 

Unrealized loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Reclassification of loss on investments into earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

11

 

Balances, March 31, 2022

 

 

36,120,518

 

 

$

38

 

 

 

1,910,897

 

 

$

(100,903

)

 

$

442,405

 

 

$

150,690

 

 

$

(709

)

 

$

491,521

 

 

See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

5

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands) (unaudited)

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

12,603

 

 

$

10,200

 

Reconciliation of net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

(269

)

 

 

163

 

Depreciation and amortization of property and equipment

 

 

3,864

 

 

 

3,765

 

Amortization of intangible assets

 

 

2,470

 

 

 

2,664

 

Provision for credit losses

 

 

1,144

 

 

 

1,205

 

Stock-based compensation

 

 

9,015

 

 

 

6,925

 

Other, net

 

 

(7

)

 

 

76

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,563

)

 

 

(2,828

)

Deferred costs

 

 

(2,797

)

 

 

(986

)

Other current and non-current assets

 

 

(6,736

)

 

 

(2,257

)

Accounts payable

 

 

(3,229

)

 

 

(828

)

Accrued compensation

 

 

(10,495

)

 

 

(2,988

)

Accrued expenses

 

 

(1,746

)

 

 

(1,052

)

Deferred revenue

 

 

6,349

 

 

 

7,565

 

Operating leases

 

 

(256

)

 

 

(19

)

Net cash provided by operating activities

 

 

4,347

 

 

 

21,605

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,355

)

 

 

(3,263

)

Purchases of investments

 

 

(54,977

)

 

 

(14,039

)

Maturities of investments

 

 

65,000

 

 

 

12,500

 

Net cash provided by (used in) investing activities

 

 

5,668

 

 

 

(4,802

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(15,226

)

 

 

 

Net proceeds from exercise of options to purchase common stock

 

 

504

 

 

 

2,802

 

Net proceeds from employee stock purchase plan activity

 

 

147

 

 

 

105

 

Payment for contingent consideration

 

 

 

 

 

(164

)

Net cash provided by (used in) financing activities

 

 

(14,575

)

 

 

2,743

 

Effect of foreign currency exchange rate changes

 

 

96

 

 

 

36

 

Net increase (decrease) in cash and cash equivalents

 

 

(4,464

)

 

 

19,582

 

Cash and cash equivalents at beginning of period

 

 

207,552

 

 

 

149,692

 

Cash and cash equivalents at end of period

 

$

203,088

 

 

$

169,274

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

    SPS COMMERCE, INC.

6

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

SPS COMMERCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE A – General

Business Description

SPS Commerce is a leading provider of cloud-based supply chain management services across our global retail network. Our products make it easier for retailers, suppliers, grocers, distributors, and logistics firms to orchestrate the management of item data, order fulfillment, inventory control, and sales analytics across omnichannel retail channels. SPS Commerce delivers our products using a full-service model whereby our internal experts monitor, update, and boost network performance on our customers’ behalf.

The services offered by SPS Commerce eliminate the need for on-premise software and support staff by taking on that capability on the customer’s behalf. The services we provide enable our customers to increase their supply cycle agility, optimize their inventory levels and sell-through, reduce operational costs and gain increased visibility into customer orders, to help ensure that suppliers, grocers, distributors, and logistics firms can satisfy exacting retailer requirements.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SPS Commerce, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

This interim financial information has been prepared under the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by GAAP. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”). We have included all normal recurring adjustments considered necessary to provide a fair presentation of our financial position, results of operations, stockholders’ equity, and cash flows for the interim periods presented. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Significant Accounting Policies

There were no material changes in our significant accounting policies during the three months ended March 31, 2022. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC, for additional information regarding our significant accounting policies.

Accounting Pronouncements Not Yet Adopted

 

Standard

 

Date of Issuance

 

Description

 

Date of Required

Adoption

 

Effect on the Financial Statements

ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

 

October 2021

 

This amendment requires that an acquirer recognize and

measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, effective for all business combinations in the year of adoption and thereafter.

 

January 2023

 

The adoption of this standard may have a material impact on the purchase accounting for business combinations depending on the specific amount of contract assets and liabilities being acquired.

 

 

    SPS COMMERCE, INC.

7

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

NOTE B – Revenue

 

We derive our revenues from the following revenue streams:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Recurring revenues:

 

 

 

 

 

 

 

 

Fulfillment

 

$

84,731

 

 

$

71,404

 

Analytics

 

 

11,296

 

 

 

10,144

 

Other

 

 

1,540

 

 

 

1,253

 

Recurring revenues

 

 

97,567

 

 

 

82,801

 

One-time revenues

 

 

7,626

 

 

 

7,293

 

Total revenue

 

$

105,193

 

 

$

90,094

 

 

Revenues are the amount that reflects the consideration we are contractually and legally entitled to, as well as expect to collect, in exchange for those services.

Recurring Revenues

Recurring revenues consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics, and Other supply chain management products. Revenue for these products is generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our contracts with our recurring revenue customers are recurring in nature, generally ranging from monthly to annual, and generally allow the customer to cancel the contract for any reason with 30 to 90 days’ notice. Timing of billings varies by customer and by contract type and generally are either in advance or within 30 days of the service being performed.

Given that the recurring revenue contracts are for one year or less, we have applied the optional exemption to not disclose information about the remaining performance obligations for recurring revenue contracts.

One-time Revenues

One-time revenues consist of set-up fees and miscellaneous fees from customers.

Set-up revenues

Set-up fees are specific for each connection a customer has with a trading partner. These nonrefundable fees are necessary for our customers to utilize our services and do not provide any standalone value. Many of our customers have connections with numerous trading partners.

Set-up fees constitute a material renewal option right that provide customers a significant future incentive that would not be otherwise available to that customer unless they entered into the contract, as the set-up fees will not be incurred again upon contract renewal. As such, set-up fees and related costs are deferred and recognized ratably over two years, which is the estimated period for which a material right is present for our customers.

The table below presents the activity of the portion of the deferred revenue liability relating to set-up fees:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Balance, beginning of period

 

$

14,459

 

 

$

11,118

 

Invoiced set-up fees

 

 

4,003

 

 

 

3,867

 

Recognized set-up fees

 

 

(3,524

)

 

 

(2,883

)

Balance, end of period

 

$

14,938

 

 

$

12,102

 

 

The entire balance of deferred set-up fees will be recognized within two years. Those that will be recognized within the next year are classified as current, whereas the remainder are classified as non-current.

 

    SPS COMMERCE, INC.

8

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

Miscellaneous one-time revenues

Miscellaneous one-time fees consist of professional services and testing and certification.

The contract period for these one-time fees is for one year or less and recognized at the time service is provided. We have applied the optional exemption to not disclose information about the remaining performance obligations for miscellaneous one-time fee contracts since they have original durations of one year or less.

NOTE C – Deferred Costs

The deferred costs activity was as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Balance, beginning of period

 

$

59,720

 

 

$

50,595

 

Incurred deferred costs

 

 

17,781

 

 

 

13,427

 

Amortized deferred costs

 

 

(14,891

)

 

 

(12,482

)

Balance, end of period

 

$

62,610

 

 

$

51,540

 

 

NOTE D – Financial Instruments

Cash equivalents and investments

Cash equivalents and investments consisted of the following:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

(in thousands)

 

Amortized Cost

 

 

Unrealized Losses, net

 

 

Fair Value

 

 

Amortized Cost

 

 

Unrealized Gains (Losses), net

 

 

Fair Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

135,238

 

 

$

 

 

$

135,238

 

 

$

138,205

 

 

$

 

 

$

138,205

 

Certificates of deposit

 

 

7,497

 

 

 

 

 

 

7,497

 

 

 

7,268

 

 

 

 

 

 

7,268

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

29,976

 

 

 

(3

)

 

 

29,973

 

 

 

34,984

 

 

 

7

 

 

 

34,991

 

U.S. treasury securities

 

 

2,500

 

 

 

(2

)

 

 

2,498

 

 

 

7,500

 

 

 

(1

)

 

 

7,499

 

 

 

$

175,211

 

 

$

(5

)

 

$

175,206

 

 

$

187,957

 

 

$

6

 

 

$

187,963

 

 

 

Recurring fair value measurements

The following table details the fair value hierarchy of our assets and liabilities measured at a fair value on a recurring basis:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

135,238

 

 

$

 

 

$

 

 

$

135,238

 

 

$

138,205

 

 

$

 

 

$

 

 

$

138,205

 

Certificates of deposit

 

 

7,497

 

 

 

 

 

 

 

 

 

7,497

 

 

 

7,268

 

 

 

 

 

 

 

 

 

7,268

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

29,973

 

 

 

 

 

 

29,973

 

 

 

 

 

 

34,991

 

 

 

 

 

 

34,991

 

U.S. treasury securities

 

 

 

 

 

2,498

 

 

 

 

 

 

2,498

 

 

 

 

 

 

7,499

 

 

 

 

 

 

7,499

 

 

 

$

142,735

 

 

$

32,471

 

 

$

 

 

$

175,206

 

 

$

145,473

 

 

$

42,490

 

 

$

 

 

$

187,963

 

 

    SPS COMMERCE, INC.

9

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

See Note E to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC, for additional information regarding the three levels of inputs that may be used to measure fair value.

NOTE E – Allowance for Credit Losses

The allowance for credit losses activity, included in accounts receivable, net, was as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Balance, beginning of period

 

$

4,249

 

 

$

4,233

 

Provision for credit losses

 

 

1,144

 

 

 

1,205

 

Write-offs, net of recoveries

 

 

(1,106

)

 

 

(1,437

)

Balance, end of period

 

$

4,287

 

 

$

4,001

 

 

NOTE F – Property and Equipment, Net

Property and equipment, net consisted of the following:

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Internally developed software

 

$

48,013

 

 

$

44,981

 

Computer equipment

 

 

30,609

 

 

 

29,329

 

Leasehold improvements

 

 

16,693

 

 

 

16,685

 

Office equipment and furniture

 

 

10,963

 

 

 

10,972

 

Property and equipment, cost

 

 

106,278

 

 

 

101,967

 

Less: accumulated depreciation and amortization

 

 

(74,017

)

 

 

(70,066

)

Total property and equipment, net

 

$

32,261

 

 

$

31,901

 

 

NOTE G – Goodwill and Intangible Assets, Net

Goodwill

The activity in goodwill was as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Balance, beginning of period

 

$

143,663

 

 

$

134,853

 

Foreign currency translation

 

 

499

 

 

 

142

 

Remeasurement from provisional purchase accounting amount

 

 

 

 

 

268

 

Balance, end of period

 

$

144,162

 

 

$

135,263

 

Intangible Assets

Intangible assets, net consisted of the following:

 

 

March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Gross

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

Remaining

 

 

Carrying

 

 

Accumulated

 

 

Currency

 

 

 

 

 

 

Amortization

(in thousands, except weighted average amortization period)

 

Amount

 

 

Amortization

 

 

Translation

 

 

Net

 

 

Period

Subscriber relationships

 

$

45,162

 

 

$

(16,569

)

 

$

41

 

 

$

28,634

 

 

6 years

Acquired technology

 

 

33,900

 

 

 

(6,376

)

 

 

 

 

 

27,524

 

 

7 years

 

 

$

79,062

 

 

$

(22,945

)

 

$

41

 

 

$

56,158

 

 

7 years

 

    SPS COMMERCE, INC.

10

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Gross

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

Remaining

 

 

Carrying

 

 

Accumulated

 

 

Currency

 

 

 

 

 

 

Amortization

(in thousands, except weighted average amortization period)

 

Amount

 

 

Amortization

 

 

Translation

 

 

Net

 

 

Period

Subscriber relationships

 

$

61,270

 

 

$

(29,866

)

 

$

(1,395

)

 

$

30,009

 

 

6 years

Acquired technology

 

 

35,316

 

 

 

(6,738

)

 

 

 

 

 

28,578

 

 

7 years

 

 

$

96,586

 

 

$

(36,604

)

 

$

(1,395

)

 

$

58,587

 

 

7 years

 

The estimated future annual amortization expense related to intangible assets is as follows:

 

(in thousands)

 

 

 

 

Remainder of 2022

 

$

7,431

 

2023

 

 

9,831

 

2024

 

 

8,535

 

2025

 

 

8,396

 

2026

 

 

7,392

 

Thereafter

 

 

14,573

 

Total future amortization

 

$

56,158

 

 

NOTE H – Commitments and Contingencies

Leases

The components of lease expense were as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Operating lease cost

 

$

759

 

 

$

540

 

Variable lease cost

 

 

793

 

 

 

768

 

 

 

$

1,552

 

 

$

1,308

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,095

 

 

$

521

 

 

Supplemental balance sheet information related to leases was as follows:

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Weighted-average remaining lease term - operating leases

 

4.6 years

 

 

4.8 years

 

Weighted-average discount rate - operating leases

 

 

4.0

%

 

 

4.0

%

 

 

    SPS COMMERCE, INC.

11

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

At March 31, 2022, our future minimum payments under operating leases were as follows:

 

(in thousands)

 

 

 

 

Remainder of 2022

 

 

3,780

 

2023

 

 

4,698

 

2024

 

 

4,265

 

2025

 

 

3,861

 

2026

 

 

3,774

 

Thereafter

 

 

1,270

 

Total future gross payments

 

 

21,648

 

Less: imputed interest

 

 

(1,973

)

Total operating lease liabilities

 

$

19,675

 

Purchase Commitments

We have entered into separate noncancelable agreements with computing infrastructure and customer relationship management vendors for services through 2023. At March 31, 2022, the total remaining purchase commitments were $8.0 million.

NOTE I – Stockholders’ Equity

Stock Repurchase Programs

Our board of directors has authorized multiple non-concurrent programs to repurchase our common stock. Details of the plans and activity thereunder were as follows:

 

 

 

Effective Date

Expiration Date

 

Share Value Authorized for Repurchase

 

 

Share Value Repurchased

 

 

Unused & Expired Share Repurchase Value

 

 

Share Value Available for Future Repurchase

 

2019 Program

 

November 2019

November 2021

 

$

50,000,000

 

 

$

29,611,000

 

 

$

20,389,000

 

 

N/A

 

2021 Program

 

November 2021

November 2023

 

 

50,000,000

 

 

 

24,995,000

 

 

N/A

 

 

$

25,005,000

 

The stock repurchase activity by period was as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Shares repurchased cost

 

$

15,226,000

 

 

$

-

 

Number of shares repurchased

 

 

121,544

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Average price per repurchased share

 

$

125.27

 

 

$

-

 

 

 

    SPS COMMERCE, INC.

12

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

NOTE J – Stock-Based Compensation

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including performance share units (“PSUs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and deferred stock units (“DSUs”), to employees, non-employee directors and other consultants who provide services to us. We also provide an employee stock purchase plan (“ESPP”) and 401(k) match to eligible participants.

We recognize stock-based compensation expense based on grant date award fair value. This cost is recognized over the period for which the employee is required to provide service in exchange for the award or the award performance period, except for expenses relating to retirement-eligible employees that have not given their required notice, which is recognized on a pro-rata basis over the notice period prior to retirement. At March 31, 2022, there were 13.2 million shares available for grant under approved equity compensation plans.

Stock-based compensation expense was allocated in the condensed consolidated statements of comprehensive income as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Cost of revenues

 

$

2,179

 

 

$

1,503

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

2,032

 

 

 

1,482

 

Research and development

 

 

1,474

 

 

 

911

 

General and administrative

 

 

3,330

 

 

 

3,029

 

 

 

$

9,015

 

 

$

6,925

 

 

Stock-based compensation expense by grant type or plan was as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Stock options

 

$

477

 

 

$

551

 

PSUs

 

 

2,699

 

 

 

2,084

 

RSUs

 

 

4,638

 

 

 

3,423

 

RSAs & DSUs

 

 

108

 

 

 

106

 

ESPP

 

 

574

 

 

 

326

 

401(k) stock match

 

 

519

 

 

 

435

 

 

 

$

9,015

 

 

$

6,925

 

 

As of March 31, 2022, there was $50.9 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted average period of 2.8 years.

Stock Options

Our stock option activity was as follows:

 

 

 

Three Months Ended

 

 

 

March 31, 2022

 

 

 

 

 

 

 

Weighted Average

 

 

 

Options

(#)

 

 

Exercise Price

($/share)

 

Outstanding, beginning of period

 

 

678,650

 

 

$

44.76

 

Granted

 

 

31,829

 

 

 

130.16

 

Exercised

 

 

(13,320

)

 

 

37.86

 

Forfeited

 

 

(2,634

)

 

 

84.06

 

Outstanding, end of period

 

 

694,525

 

 

$

48.66

 

 

 

    SPS COMMERCE, INC.

13

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

Of the total outstanding options at March 31, 2022, 0.6 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of $40.46 per share and a weighted average remaining contractual life of 3.2 years.

The weighted average grant date fair value of options granted during the three months ended March 31, 2022 was $41.59 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

Volatility

 

 

38

%

Dividend yield

 

 

 

Life (in years)

 

 

4.0

 

Risk-free interest rate

 

 

1.82

%

 

Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units

In each of the quarters ended March 31, 2022, 2021, 2020 and 2019 we granted PSU awards with a target performance level. These awards are earned based upon our Company’s total shareholder return as compared to an indexed total shareholder return over the course of a fiscal based three-year performance period, starting in the year of grant. Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, 2022, PSU awards granted in 2019 vested at the maximum performance level and less than 0.1 million shares of common stock were issued.

Activity for our PSUs, RSUs, RSAs, and DSUs in aggregate was as follows:

 

 

Three Months Ended

 

 

 

March 31, 2022

 

 

 

 

 

 

 

Weighted Average

 

 

 

(#)

 

 

Grant Date Fair

Value ($/share)

 

Outstanding, beginning of period

 

 

702,160

 

 

$

78.03

 

Granted

 

 

233,255

 

 

 

127.18

 

Vested and common stock issued

 

 

(218,957

)

 

 

62.29

 

Forfeited

 

 

(8,239

)

 

 

96.74

 

Outstanding, end of period

 

 

708,219

 

 

$

98.87

 

 

The number of PSUs, RSUs, RSAs, and DSUs outstanding at March 31, 2022 included less than 0.1 million units that have vested, but the shares of common stock have not yet been issued, pursuant to the terms of the underlying agreements.

Employee Stock Purchase Plan

Our ESPP activity was as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except share data)

 

2022

 

 

2021

 

Amounts for shares purchased

 

$

147

 

 

$

105

 

Shares purchased

 

 

1,698

 

 

 

1,621

 

A total of 1.8 million shares of common stock are reserved for issuance under the ESPP as of March 31, 2022.

 

The fair value was estimated based on the market price of our common stock at the beginning of the offering period using the following assumptions:

 

Volatility

 

 

32.3

%

Dividend yield

 

 

 

Life (in years)

 

 

0.5

 

Risk-free interest rate

 

 

0.05

%

 

 

    SPS COMMERCE, INC.

14

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

NOTE K – Income Taxes

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pretax income and adjust the provision for discrete tax items recorded in the period. Differences between our effective tax rate and statutory tax rates are primarily due to the impact of permanently non-deductible expenses partially offset by the federal research and development credits and tax benefits associated with foreign-derived intangible income. Additionally, excess tax benefits generated upon settlement or exercise of stock awards are recognized as a reduction to income tax expense as a discrete tax item in the quarter that the event occurs, creating potentially significant fluctuation in tax expense by quarter and by year. Our provisions for income taxes includes current federal, state, and foreign income tax expense, as well as deferred tax expense.

 

NOTE L – Other Income and Expense

Other income (expense), net included the following:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Investment income

 

$

48

 

 

$

97

 

Realized gain (loss) from foreign currency on cash and investments held

 

 

468

 

 

 

(289

)

Other expense, net

 

 

(93

)

 

 

(133

)

Total other income (expense), net

 

$

423

 

 

$

(325

)

 

NOTE M – Net Income Per Share

The components and computation of basic and diluted net income per share were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except per share amounts)

 

2022

 

 

2021

 

Numerator

 

 

 

 

 

 

 

 

Net income

 

$

12,603

 

 

$

10,200

 

Denominator

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic

 

 

36,136

 

 

 

35,751

 

Options to purchase common stock

 

 

419

 

 

 

568

 

PSUs, RSUs, RSAs, and DSUs

 

 

434

 

 

 

403

 

Weighted average common shares outstanding, diluted

 

 

36,989

 

 

 

36,722

 

Net income per share

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

 

$

0.29

 

Diluted

 

$

0.34

 

 

$

0.28

 

 

The number of outstanding potential common shares that were excluded from the calculation of diluted net income per share as they were anti-dilutive was as follows:

 

 

Three Months Ended

 

 

March 31,

(in thousands)

 

2022

 

2021

Antidilutive shares

 

151

 

56

 

 

    SPS COMMERCE, INC.

15

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

NOTE N – Geographic Information

Revenue

The percentage of domestic revenue, which we define as the percentage of consolidated revenue that was attributable to customers based within the U.S., was as follows:

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Domestic revenue

 

 

84

%

 

 

84

%

No single jurisdiction outside of the U.S. had revenues in excess of 10%.

Property and Equipment

The percentage of property and equipment, net located in subsidiary and office locations outside of the U.S. was as follows:

 

 

March 31, 2022

 

 

December 31, 2021

 

International property and equipment

 

 

12

%

 

 

12

%

 

 

 

 

    SPS COMMERCE, INC.

16

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding us, our business prospects and our results of operations are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects, and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Similarly, statements that describe our future plans, objectives or goals are also forward-looking. Forward-looking statements may also be made from time to time in oral presentations, including telephone conferences and/or webcasts open to the public. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainties that could cause results in future periods to differ materially from those anticipated by some of the statements made in this report, including the risks and uncertainties described under the heading “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended December 31, 2021, as may be updated in our subsequent Quarterly Reports on Form 10-Q from time to time. We expressly disclaim any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

Overview

SPS Commerce is a leading provider of cloud-based supply chain management services across our global retail network. Our products make it easier for retailers, suppliers, grocers, distributors, and logistics firms to orchestrate the management of item data, order fulfillment, inventory control and sales analytics across omnichannel retail channels. SPS Commerce delivers our products using a full-service model whereby our internal experts monitor, update, and boost network performance on our customers’ behalf.

The services offered by SPS Commerce eliminate the need for on-premise software and support staff by taking on that capability on the customer’s behalf. The services we provide enable our customers to increase their supply cycle agility, optimize their inventory levels and sell-through, reduce operational costs and gain increased visibility into customer orders, to help ensure that suppliers, grocers, distributors, and logistics firms can satisfy exacting retailer requirements.

We plan to continue to grow our business by further penetrating the supply chain management market, increasing revenues from our customers as their businesses grow, expanding our distribution channels, expanding our international presence and, from time to time, developing new products and applications. We also intend to selectively pursue acquisitions that will add customers, allow us to expand into new regions, or allow us to offer new functionalities.

Key Financial Terms, Metrics and Non-GAAP Measures

We have several key financial terms and metrics, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

To supplement our financial statements, we provide investors with Adjusted EBITDA, Adjusted EBITDA Margin, and non-GAAP income per share, all of which are non-GAAP financial measures. We believe that these non-GAAP measures provide useful information to our management, board of directors, and investors regarding certain financial and business trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses and planning purposes. Adjusted EBITDA is also used for purposes of determining executive and senior management incentive compensation.

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our financial statements and are subject to inherent limitations. Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP financial measures that are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

    SPS COMMERCE, INC.

17

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

Critical Accounting Policies and Estimates

This discussion of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in accordance with GAAP and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Our actual results may differ from these estimates under different assumptions or conditions.

A critical accounting policy or estimate is one that is both material to the presentation of our financial statements and requires us to make difficult, subjective, or complex judgments relating to uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, we believe that our policies for revenue recognition, internal-use software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.

During the three months ended March 31, 2022, there were no changes in our critical accounting policies or estimates. For additional information regarding our critical accounting policies and estimates, see the discussion under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.

Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

The following table presents our results of operations for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

(dollars in thousands)

 

$

 

 

% of revenue(1)

 

 

$

 

 

% of revenue(1)

 

 

$

 

 

%

 

Revenues

 

$

105,193

 

 

 

100.0

%

 

$

90,094

 

 

 

100.0

%

 

$

15,099

 

 

 

16.8

%

Cost of revenues

 

 

35,389

 

 

 

33.6

 

 

 

29,970

 

 

 

33.3

 

 

 

5,419

 

 

 

18.1

 

Gross profit

 

 

69,804

 

 

 

66.4

 

 

 

60,124

 

 

 

66.7

 

 

 

9,680

 

 

 

16.1

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

24,655

 

 

 

23.4

 

 

 

21,355

 

 

 

23.7

 

 

 

3,300

 

 

 

15.5

 

Research and development

 

 

10,701

 

 

 

10.2

 

 

 

8,706

 

 

 

9.7

 

 

 

1,995

 

 

 

22.9

 

General and administrative

 

 

15,468

 

 

 

14.7

 

 

 

14,737

 

 

 

16.3

 

 

 

731

 

 

 

5.0

 

Amortization of intangible assets

 

 

2,470

 

 

 

2.3

 

 

 

2,664

 

 

 

2.9

 

 

 

(194

)

 

 

(7.3

)

Total operating expenses

 

 

53,294

 

 

 

50.7

 

 

 

47,462

 

 

 

52.6

 

 

 

5,832

 

 

 

12.3

 

Income from operations

 

 

16,510

 

 

 

15.7

 

 

 

12,662

 

 

 

14.1

 

 

 

3,848

 

 

 

30.4

 

Other income (expense), net

 

 

423

 

 

 

0.4

 

 

 

(325

)

 

 

(0.4

)

 

 

748

 

 

 

230.2

 

Income before income taxes

 

 

16,933

 

 

 

16.1

 

 

 

12,337

 

 

 

13.7

 

 

 

4,596

 

 

 

37.3

 

Income tax expense

 

 

4,330

 

 

 

4.1

 

 

 

2,137

 

 

 

2.4

 

 

 

2,193

 

 

 

102.6

 

Net income

 

$

12,603

 

 

 

12.0

%

 

$

10,200

 

 

 

11.3

%

 

$

2,403

 

 

 

23.6

%

 

(1)

Amounts in column may not foot due to rounding.

 

Revenues Revenues increased for the 85th consecutive quarter. The increase resulted from two primary factors: the increase in recurring revenue customers, which is driven primarily by continued business growth and by business acquisitions, and the increase in average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

 

The number of recurring revenue customers increased 12% to 37,900 at March 31, 2022 from 33,850 at March 31, 2021 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions.

 

Wallet share increased 5% to $10,350 for the three months ended March 31, 2022 from $9,900 for the same period in 2021. This was primarily attributable to increased usage of our products by our recurring revenue customers.

Recurring revenues increased 18% to $97.6 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Recurring revenues from recurring revenue customers accounted for 93% and 92% of our total revenues for the three months ended March 31, 2022 and 2021, respectively. We anticipate that the number of recurring revenue customers and wallet share will continue to increase as we execute our growth strategy focused on further penetrations of our market.

 

    SPS COMMERCE, INC.

18

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $3.8 million in personnel-related costs and an increase of $0.7 million in stock-based compensation.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $1.8 million in personnel-related costs, an increase of $0.6 million in stock-based compensation, and an increase of $0.6 million in variable compensation earned by sales personnel and referral partners.

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of personnel costs of $1.2 million and an increase in stock-based compensation of $0.6 million.

General and Administrative Expenses - The increase in general and administrative expense was primarily related to supporting continued business growth, including an increase in headcount which resulted in an increase in personnel-related costs of $0.8 million.

Amortization of Intangible Assets - The decrease in amortization of intangible assets was driven by the full amortization of previously acquired intangible assets as partially offset by acquired intangible assets related to recent business combinations.

Other Income (Expense), Net - The change was primarily due to favorable foreign currency exchange rate changes.

Income Tax Expense - The increase in income tax expense was driven by a decrease in the excess tax deductions due to the current quarter equity award settlements, partially offset by a decrease in nondeductible executive compensation. Excess tax benefits generated upon the settlement or exercise of stock awards are recognized as a reduction to income tax expense and, as a result, we expect that our annual effective income tax rate will fluctuate.

Adjusted EBITDA - Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income adjusted for income tax expense, depreciation and amortization expense, stock-based compensation expense, realized gain or loss from foreign currency on cash and investments held, investment income or loss, and other adjustments as necessary for a fair presentation. For the three months ended March 31, 2021, other adjustments included accelerated tenant improvement benefit, which was incurred as part of executing a lease agreement. This tenant improvement adjustment was partially offset by accelerated depreciation, which is included within Depreciation and amortization of property and equipment and was also incurred as part of executing a lease agreement. The following table provides a reconciliation of net income to Adjusted EBITDA:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Net income

 

$

12,603

 

 

$

10,200

 

Income tax expense

 

 

4,330

 

 

 

2,137

 

Depreciation and amortization of property and equipment

 

 

3,864

 

 

 

3,765

 

Amortization of intangible assets

 

 

2,470

 

 

 

2,664

 

Stock-based compensation expense

 

 

9,015

 

 

 

6,925

 

Realized (gain) loss from foreign currency on cash and investments held

 

 

(468

)

 

 

289

 

Investment income

 

 

(48

)

 

 

(97

)

Other

 

 

 

 

 

(426

)

Adjusted EBITDA

 

$

31,766

 

 

$

25,457

 

 

 

    SPS COMMERCE, INC.

19

Form 10-Q for the Quarterly Period ended March 31, 2022

 


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Adjusted EBITDA Margin - Adjusted EBITDA Margin, which is a non-GAAP measure of financial performance, consists of Adjusted EBITDA divided by revenue. Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue. The following table provides a comparison of Margin to Adjusted EBITDA Margin:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except Margin and Adjusted EBITDA Margin)

 

2022

 

 

2021

 

Revenue

 

$

105,193

 

 

$

90,094

 

 

 

 

 

 

 

 

 

 

Net income

 

 

12,603

 

 

 

10,200

 

Margin

 

 

12

%

 

 

11

%

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

31,766

 

 

 

25,457

 

Adjusted EBITDA Margin

 

 

30

%

 

 

28

%

 

Non-GAAP Income per Share - Non-GAAP income per share, which is a non-GAAP measure of financial performance, consists of net income plus stock-based compensation expense, amortization expense related to intangible assets, realized gain or loss from foreign currency on cash and investments held, other adjustments as necessary for a fair presentation, and the corresponding tax impacts of the adjustments to net income, divided by the weighted average number of shares of common and diluted stock outstanding during each period. For the three months ended March 31, 2021, other adjustments included accelerated tenant improvement benefit, which was incurred as part of executing a lease agreement.

To quantify the tax effects, we recalculated income tax expense excluding the direct book and tax effects of the specific items constituting the non-GAAP adjustments. The difference between this recalculated income tax expense and GAAP income tax expense is presented as the income tax effect of the non-GAAP adjustments.

The following table provides a reconciliation of net income to non-GAAP income per share:

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except per share amounts)

 

2022

 

 

2021

 

Net income

 

$

12,603

 

 

$

10,200

 

Stock-based compensation expense

 

 

9,015

 

 

 

6,925

 

Amortization of intangible assets

 

 

2,470

 

 

 

2,664

 

Realized (gain) loss from foreign currency on cash and investments held

 

 

(468

)

 

 

289

 

Other

 

 

 

 

 

(426

)

Income tax effects of adjustments

 

 

(3,219

)

 

 

(3,975

)

Non-GAAP income

 

$

20,401

 

 

$

15,677

 

Shares used to compute non-GAAP income per share

 

 

 

 

 

 

 

 

Basic

 

 

36,136

 

 

 

35,751

 

Diluted

 

 

36,989

 

 

 

36,722

 

Non-GAAP income per share

 

 

 

 

 

 

 

 

Basic

 

$

0.56

 

 

$

0.44

 

Diluted

 

$

0.55

 

 

$

0.43

 

 

 

    SPS COMMERCE, INC.

20

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

Liquidity and Capital Resources

As of March 31, 2022, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $243.1 million and net accounts receivable of $38.8 million. Our investments are selected in accordance with our investment policy, with a goal of maintaining liquidity and capital preservation. Our cash equivalents and short-term investments are held in highly liquid money market funds, certificates of deposits, commercial paper, and U.S. treasury securities.

The summary of activity within the condensed consolidated statements of cash flows was as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2022

 

 

2021

 

Net cash provided by operating activities

 

$

4,347

 

 

$

21,605

 

Net cash provided by (used in) investing activities

 

 

5,668

 

 

 

(4,802

)

Net cash provided by (used in) financing activities

 

 

(14,575

)

 

 

2,743

 

 

Net Cash Flows from Operating Activities

The decrease in cash provided by operating activities was primarily driven by changes in the amount and timing of settlement of operating assets and liabilities.

Net Cash Flows from Investing Activities

The change in net cash flows from investing activities was primarily due to the increased maturities of investments, partially offset by the increased purchases of investments.

Net Cash Flows from Financing Activities

The change in net cash flows from financing activities was primarily due to the increases in cash used for share repurchases and lower net proceeds from stock option exercises.

Contractual and Commercial Commitment Summary

Our contractual obligations and commercial commitments as of March 31, 2022 are summarized below:

 

 

 

Payments Due by Period

 

 

 

Less Than

 

 

 

 

 

 

 

 

 

 

More Than

 

 

 

 

 

(in thousands)

 

1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

5 Years

 

 

Total

 

Operating lease obligations, including imputed interest

 

$

5,051

 

 

$

8,702

 

 

$

7,577

 

 

$

318

 

 

$

21,648

 

Purchase commitments

 

 

6,512

 

 

 

1,466

 

 

 

 

 

 

 

 

 

7,978

 

Total

 

$

11,563

 

 

$

10,168

 

 

$

7,577

 

 

$

318

 

 

$

29,626

 

Future Capital Requirements

Our future capital requirements may vary significantly from those now planned and will depend on many factors, including:

 

costs to develop and implement new products and applications, if any;

 

sales and marketing resources needed to further penetrate our market and gain acceptance of new products and applications that we may develop;

 

expansion of our operations in the U.S. and internationally;

 

response of competitors to our products and applications; and

 

use of capital for acquisitions, if any.

Historically, we have experienced increases in our expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we expand our business.

 

    SPS COMMERCE, INC.

21

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

We believe our cash, cash equivalents, investments and our cash flows from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Off-Balance Sheet Arrangements 

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.

Foreign Currency Exchange and Inflation Rate Changes

For information regarding the effect of foreign currency exchange rate changes, refer to the section entitled “Foreign Currency Exchange Risk,” included in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of this Quarterly Report on Form 10-Q.

Inflation and changing prices did not have a material effect on our business during the three months ended March 31, 2022 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

 

 

 

 

 

 

    SPS COMMERCE, INC.

22

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity Risk

The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss. We are exposed to market risk related to changes in interest rates. However, based on the nature and current level of our cash, cash equivalents, and investments, we believe there is no material risk of exposure. We do not enter into investments for trading or speculative purposes.

We did not have any variable interest rate outstanding debt as of March 31, 2022. Therefore, we do not have any material risk to interest rate fluctuations.

Foreign Currency Exchange Risk

Due to international operations, we have revenue, expenses, assets, and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Australian and Canadian dollars. Our condensed consolidated balance sheet, results of operations, and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.

Our sales are primarily denominated in U.S. dollars. Our expenses are generally denominated in the local currencies in which our operations are located. As of March 31, 2022, we maintained approximately 6% of our total cash and cash equivalents and investments in foreign currencies.

We believe that a hypothetical 10% change in foreign currency exchange rates or an inability to access foreign funds would not materially affect our ability to meet our operational needs, result in a material foreign currency loss or have a material impact on our consolidated financials.  

We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk, although we may do so in the future.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022.

Changes in Internal Control over Financial Reporting

In November 2021, we acquired the Genius Central business. Pursuant to the SEC’s general guidance that an assessment of a recently acquired business may be omitted from our scope for a period not to exceed one year from the date of acquisition, the scope of our most recent assessment did not include Genius Central. We are currently in the process of incorporating internal controls specific to Genius Central that we believe are appropriate and necessary to consolidate and report upon our financial results. Our assessment of the effectiveness of internal control over financial reporting as of December 31, 2022 will include Genius Central. As of and for the three months ended March 31, 2022, excluding net intangible assets and goodwill, Genius Central represented less than 1% of our consolidated assets and approximately 1% of our consolidated revenues.

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

    SPS COMMERCE, INC.

23

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

PART II. – OTHER INFORMATION

Item 1.

We are not currently subject to any material legal proceedings. From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities. Any such actions, even those that lack merit, could result in the expenditure of significant financial and managerial resources. We believe that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal proceedings that may arise.

Item 1A.

Risk Factors

There have been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) Share Repurchases

 

Period

 

Total Number

of Shares

Purchased

 

 

Average Price

Paid per Share

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced

Program(1)

 

 

Approximate

Dollar Value of

Shares that

May Yet be

Purchased

Under the

Program

 

January 1 - 31, 2022

 

 

36,500

 

 

$

121.51

 

 

 

36,500

 

 

$

35,796,000

 

February 1 - 28, 2022

 

 

38,000

 

 

 

125.24

 

 

 

38,000

 

 

 

31,037,000

 

March 1 - 31, 2022

 

 

47,044

 

 

 

128.22

 

 

 

47,044

 

 

 

25,005,000

 

Total

 

 

121,544

 

 

$

125.27

 

 

 

121,544

 

 

$

25,005,000

 

 

 

(1)

Under our share repurchase program announced by our board of directors on October 28, 2021, we can repurchase up to $50.0 million of our common stock in the open market or in privately negotiated purchases, or both, through November 28, 2023. Our stock repurchase activity under this program during the three months ended March 31, 2022 is included in this column. Our prior stock repurchase program expired on November 2021. For more information regarding our stock repurchase programs, refer to Note I to our condensed consolidated financial statements, included in Part I of this Quarterly Report on Form 10-Q.

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

Not Applicable.

 

    SPS COMMERCE, INC.

24

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

Item 6.

Exhibits

 

Number

 

Description

3.1

 

Ninth Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on May 21, 2020).

 

 

 

3.2

 

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on October 17, 2017).

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

 

 

 

32.1

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

 

 

 

101

 

Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith). The XBRL instance document does not appear in the Interactive Data File because its tags are embedded within the Inline XBRL document.

 

 

 

104

 

The cover page from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL.

 

 

    SPS COMMERCE, INC.

25

Form 10-Q for the Quarterly Period ended March 31, 2022

 


Table of Contents

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: April 28, 2022

 

SPS COMMERCE, INC.

 

 

 

 

 

/s/ KIMBERLY K. NELSON

 

 

Kimberly K. Nelson

 

 

Executive Vice President and Chief Financial Officer

 

 

(principal financial and accounting officer)

 

 

 

    SPS COMMERCE, INC.

26

Form 10-Q for the Quarterly Period ended March 31, 2022