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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended:
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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
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol |
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Name of exchange on which registered |
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The Nasdaq Stock Market LLC ( |
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.
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).
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.
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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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
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at April 21, 2022 was
SPS COMMERCE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Page |
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Item 1. |
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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17 |
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Item 3. |
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23 |
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Item 4. |
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23 |
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Item 1. |
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24 |
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Item 1A. |
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24 |
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Item 2. |
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24 |
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Item 3. |
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24 |
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Item 4. |
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24 |
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Item 5. |
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24 |
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Item 6. |
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25 |
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26 |
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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.
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2 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
SPS COMMERCE, INC.
PART I. – FINANCIAL INFORMATION
Item 1.Financial Statements
SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, |
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December 31, |
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(in thousands, except shares) |
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2022 |
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2021 |
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ASSETS |
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(unaudited) |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable |
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Allowance for credit losses |
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( |
) |
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( |
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Accounts receivable, net |
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Deferred costs |
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Other assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Deferred costs, non-current |
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Deferred income tax assets |
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Other assets, non-current |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Accrued expenses |
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Deferred revenue |
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Operating lease liabilities |
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Total current liabilities |
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Other liabilities |
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Deferred revenue, non-current |
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Operating lease liabilities, non-current |
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Deferred income tax liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders' equity |
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Preferred stock, $ |
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Common stock, $ |
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Treasury Stock, at cost; |
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( |
) |
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( |
) |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to these condensed consolidated financial statements.
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3 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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Three Months Ended |
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March 31, |
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(in thousands, except per share amounts) (unaudited) |
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2022 |
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2021 |
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Revenues |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses |
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Sales and marketing |
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Research and development |
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General and administrative |
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Amortization of intangible assets |
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Total operating expenses |
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Income from operations |
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Other income (expense), net |
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( |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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Other comprehensive income |
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Foreign currency translation adjustments |
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Unrealized loss on investments, net of tax of ($ |
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( |
) |
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( |
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Reclassification of loss on investments into earnings, net of tax of $ |
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Total other comprehensive income |
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Comprehensive income |
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$ |
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$ |
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Net income per share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average common shares used to compute net income per share |
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Basic |
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Diluted |
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See accompanying notes to these condensed consolidated financial statements.
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4 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
SPS COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
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Accumulated |
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Additional |
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Other |
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Total |
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|||
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Common Stock |
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Treasury Stock |
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Paid-in |
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Retained |
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Comprehensive |
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Stockholders' |
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||||||||||||||
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(in thousands, except shares) (unaudited) |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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Equity |
|
||||||||
|
Balances, December 31, 2020 |
|
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$ |
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$ |
( |
) |
|
$ |
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$ |
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$ |
( |
) |
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$ |
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Stock-based compensation |
|
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued pursuant to stock awards |
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— |
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— |
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— |
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— |
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— |
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Employee stock purchase plan activity |
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— |
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— |
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— |
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— |
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— |
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Net income |
|
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— |
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|
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— |
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|
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— |
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|
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— |
|
|
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— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Reclassification of loss on investments into earnings, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2021 |
|
|
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|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
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|
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|
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|
|
Balances, December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Stock-based compensation |
|
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— |
|
|
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— |
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|
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— |
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— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
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|
Shares issued pursuant to stock awards |
|
|
|
|
|
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— |
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|
|
— |
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|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
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|
Employee stock purchase plan activity |
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|
|
|
|
— |
|
|
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— |
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|
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— |
|
|
|
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|
|
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— |
|
|
|
— |
|
|
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|
Repurchases of common stock |
|
|
( |
) |
|
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— |
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|
|
|
|
|
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( |
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|
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— |
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— |
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|
|
— |
|
|
|
( |
) |
|
Net income |
|
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— |
|
|
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— |
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— |
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— |
|
|
|
— |
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|
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— |
|
|
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|
Foreign currency translation adjustments |
|
|
— |
|
|
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— |
|
|
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— |
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|
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— |
|
|
|
— |
|
|
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— |
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Reclassification of loss on investments into earnings, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes to these condensed consolidated financial statements.
|
|
5 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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 |
|
$ |
|
|
|
$ |
|
|
|
Reconciliation of net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
( |
) |
|
|
|
|
|
Depreciation and amortization of property and equipment |
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Other, net |
|
|
( |
) |
|
|
|
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
Deferred costs |
|
|
( |
) |
|
|
( |
) |
|
Other current and non-current assets |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable |
|
|
( |
) |
|
|
( |
) |
|
Accrued compensation |
|
|
( |
) |
|
|
( |
) |
|
Accrued expenses |
|
|
( |
) |
|
|
( |
) |
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by operating activities |
|
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|
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|
Cash flows from investing activities |
|
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|
|
|
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Purchases of investments |
|
|
( |
) |
|
|
( |
) |
|
Maturities of investments |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
( |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
( |
) |
|
|
— |
|
|
Net proceeds from exercise of options to purchase common stock |
|
|
|
|
|
|
|
|
|
Net proceeds from employee stock purchase plan activity |
|
|
|
|
|
|
|
|
|
Payment for contingent consideration |
|
|
— |
|
|
|
( |
) |
|
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
|
Effect of foreign currency exchange rate changes |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to these condensed consolidated financial statements.
|
|
6 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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. |
|
|
7 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
NOTE B – Revenue
We derive our revenues from the following revenue streams:
|
|
|
Three Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
||
|
Recurring revenues: |
|
|
|
|
|
|
|
|
|
Fulfillment |
|
$ |
|
|
|
$ |
|
|
|
Analytics |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Recurring revenues |
|
|
|
|
|
|
|
|
|
One-time revenues |
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
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
Given that the recurring revenue contracts are for
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 |
|
$ |
|
|
|
$ |
|
|
|
Invoiced set-up fees |
|
|
|
|
|
|
|
|
|
Recognized set-up fees |
|
|
( |
) |
|
|
( |
) |
|
Balance, end of period |
|
$ |
|
|
|
$ |
|
|
The entire balance of deferred set-up fees will be recognized within
|
|
8 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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
NOTE C – Deferred Costs
The deferred costs activity was as follows:
|
|
|
Three Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
||
|
Balance, beginning of period |
|
$ |
|
|
|
$ |
|
|
|
Incurred deferred costs |
|
|
|
|
|
|
|
|
|
Amortized deferred costs |
|
|
( |
) |
|
|
( |
) |
|
Balance, end of period |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Certificates of deposit |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Certificates of deposit |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
U.S. treasury securities |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
9 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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 |
|
$ |
|
|
|
$ |
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
Write-offs, net of recoveries |
|
|
( |
) |
|
|
( |
) |
|
Balance, end of period |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
Computer equipment |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
Office equipment and furniture |
|
|
|
|
|
|
|
|
|
Property and equipment, cost |
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
Total property and equipment, net |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
Remeasurement from provisional purchase accounting amount |
|
|
— |
|
|
|
|
|
|
Balance, end of period |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
Acquired technology |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
10 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
|
|
|
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 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
Acquired technology |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
The estimated future annual amortization expense related to intangible assets is as follows:
|
(in thousands) |
|
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future amortization |
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Weighted-average remaining lease term - operating leases |
|
|
|
|
|
|
||
|
Weighted-average discount rate - operating leases |
|
|
|
% |
|
|
|
% |
|
|
11 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
At March 31, 2022, our future minimum payments under operating leases were as follows:
|
(in thousands) |
|
|
|
|
|
Remainder of 2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future gross payments |
|
|
|
|
|
Less: imputed interest |
|
|
( |
) |
|
Total operating lease liabilities |
|
$ |
|
|
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 $
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 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
N/A |
|
|
|
2021 Program |
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
$ |
|
|
|
The stock repurchase activity by period was as follows:
|
|
|
Three Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Shares repurchased cost |
|
$ |
|
|
|
$ |
- |
|
|
Number of shares repurchased |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Average price per repurchased share |
|
$ |
|
|
|
$ |
- |
|
|
|
12 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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
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 |
|
$ |
|
|
|
$ |
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Stock-based compensation expense by grant type or plan was as follows:
|
|
|
Three Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
||
|
Stock options |
|
$ |
|
|
|
$ |
|
|
|
PSUs |
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
|
|
|
RSAs & DSUs |
|
|
|
|
|
|
|
|
|
ESPP |
|
|
|
|
|
|
|
|
|
401(k) stock match |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
As of March 31, 2022, there was $
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 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
Outstanding, end of period |
|
|
|
|
|
$ |
|
|
|
|
13 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
Of the total outstanding options at March 31, 2022,
The weighted average grant date fair value of options granted during the three months ended March 31, 2022 was $
|
Volatility |
|
|
|
% |
|
Dividend yield |
|
|
— |
|
|
Life (in years) |
|
|
|
|
|
Risk-free interest rate |
|
|
|
% |
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 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
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 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Vested and common stock issued |
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
Outstanding, end of period |
|
|
|
|
|
$ |
|
|
The number of PSUs, RSUs, RSAs, and DSUs outstanding at March 31, 2022 included less than
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 |
|
$ |
|
|
|
$ |
|
|
|
Shares purchased |
|
|
|
|
|
|
|
|
A total of
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 |
|
|
|
% |
|
Dividend yield |
|
|
— |
|
|
Life (in years) |
|
|
|
|
|
Risk-free interest rate |
|
|
|
% |
|
|
14 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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 |
|
$ |
|
|
|
$ |
|
|
|
Realized gain (loss) from foreign currency on cash and investments held |
|
|
|
|
|
|
( |
) |
|
Other expense, net |
|
|
( |
) |
|
|
( |
) |
|
Total other income (expense), net |
|
$ |
|
|
|
$ |
( |
) |
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 |
|
$ |
|
|
|
$ |
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic |
|
|
|
|
|
|
|
|
|
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
PSUs, RSUs, RSAs, and DSUs |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted |
|
|
|
|
|
|
|
|
|
Net income per share |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
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 |
|
|
|
|
|
|
15 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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 |
|
|
|
% |
|
|
|
% |
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 |
|
|
|
% |
|
|
|
% |
|
|
16 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
|
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.”
|
|
17 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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.
|
|
18 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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 |
|
|
|
19 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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 |
|
|
|
20 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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.
|
|
21 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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.
|
|
22 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
|
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.
|
|
23 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
PART II. – OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
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.
|
|
24 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
|
Item 6. |
Exhibits |
|
Number |
|
Description |
|
3.1 |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
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. |
|
|
25 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |
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) |
|
|
26 |
Form 10-Q for the Quarterly Period ended March 31, 2022 |