Thursday, September 29 2022
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, Measures 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."


                                                               Form 10-Q for the
[[Image Removed]]  SPS                                    Quarterly Period ended
COMMERCE, INC.                         17                         March 31, 2022


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Significant 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 completed March 31, 2022 Compared to the 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 by 12% to 37,900

March 31, 2022 from 33,850 to March 31, 2021 mainly 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.


                                                               Form 10-Q for the
[[Image Removed]]  SPS                                    Quarterly Period ended
COMMERCE, INC.                         18                         March 31, 2022


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Revenue cost – The increase in revenue cost is mainly due to the increase in headcount, which resulted in an increase in $3.8 million staff 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 (expenses), net – The variation is mainly due to favorable variations in exchange rates.

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





                                                               Form 10-Q for the
[[Image Removed]]  SPS                                    Quarterly Period ended
COMMERCE, INC.                         19                         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 foreign exchange loss (gain) 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





                                                               Form 10-Q for the
[[Image Removed]]  SPS                                    Quarterly Period ended
COMMERCE, INC.                         20                         March 31, 2022


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Cash 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 generated by (used in) investing activities 5,668 (4,802 ) Net cash generated by (used in) financing activities (14,575 ) 2,743

Net cash flow from operating activities

The decrease in cash flow from operating activities is primarily due to changes in the amount and timing of settlement of operating assets and liabilities.

Net cash flow 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 flow 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.

Summary of contractual and commercial commitments

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 needs

Our future capital requirements may differ significantly from those currently anticipated and will depend on many factors, including:

• the costs of developing and implementing new products and applications, if any;

• the 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 expenses in line with the growth of our operations and our staff, and we expect our expenses to continue to increase as we expand our business.

                                                               Form 10-Q for the
[[Image Removed]]  SPS                                    Quarterly Period ended
COMMERCE, INC.                         21                         March 31, 2022


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

Off-balance sheet arrangements

We have no off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debts. In addition, we are not a party to any derivative contracts or synthetic leases.

Exchange rate and inflation rate

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.







                                                               Form 10-Q for the
[[Image Removed]]  SPS                                    Quarterly Period ended
COMMERCE, INC.                         22                         March 31, 2022


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