SPS Commerce Inc.

25/07/2024 | Press release | Distributed by Public on 25/07/2024 20:21

Quarterly Report for Quarter Ending June 30, 2024 (Form 10-Q)

spsc-20240630
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 2024
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission file number 001-34702
SPS COMMERCE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 41-2015127
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
333 South Seventh Street, Suite 1000, Minneapolis, MN55402
(Address of principal executive offices, including Zip Code)
(612) 435-9400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of exchange on which registered
Common Stock, par value $0.001 per share SPSC
The Nasdaq Stock Market LLC (Nasdaq Global Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No o
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). Yesx No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o
Non-accelerated filer o Smaller reporting company o
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x
The number of shares of the registrant's common stock, par value $0.001 per share, outstanding at July 18, 2024 was37,095,836 shares.
Table of Contents
SPS COMMERCE, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
3
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of Comprehensive Income
4
Condensed Consolidated Statements of Stockholders' Equity
5
Condensed Consolidated Statements of Cash Flows
7
Notes to Condensed Consolidated Financial Statements
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 4.
Controls and Procedures
28
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
29
Item 1A.
Risk Factors
29
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
29
Item 3.
Defaults Upon Senior Securities
29
Item 4.
Mine Safety Disclosures
29
Item 5.
Other Information
30
Item 6.
Exhibits
30
SIGNATURES
31
Unless the context otherwise requires, for purposes of the Quarterly Report on Form 10-Q, the words "we," "us," "our," the "Company," "SPS," and "SPS Commerce" refer to SPS Commerce, Inc.
SPS COMMERCE, INC.
2
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares) June 30,
2024 		December 31,
2023
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 240,232 $ 219,081
Short-term investments 31,554 56,359
Accounts receivable 59,355 50,160
Allowance for credit losses (3,958) (3,320)
Accounts receivable, net 55,397 46,840
Deferred costs 64,318 62,403
Other assets 15,437 16,758
Total current assets 406,938 401,441
Property and equipment, net 35,083 36,043
Operating lease right-of-use assets 7,076 7,862
Goodwill 268,872 249,176
Intangible assets, net 107,519 107,344
Other assets
Deferred costs, non-current 20,610 20,347
Deferred income tax assets 7,347 505
Other assets, non-current 1,076 1,126
Total assets $ 854,521 $ 823,844
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,877 $ 7,420
Accrued compensation 32,236 41,588
Accrued expenses 9,446 8,014
Deferred revenue 76,393 69,187
Operating lease liabilities 4,594 4,460
Total current liabilities 128,546 130,669
Other liabilities
Deferred revenue, non-current 7,111 6,930
Operating lease liabilities, non-current 7,751 9,569
Deferred income tax liabilities 7,012 8,972
Other liabilities, non-current 680 229
Total liabilities 151,100 156,369
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding
- -
Common stock, $0.001 par value; 110,000,000 shares authorized; 39,419,726 and 38,971,146 shares issued; and 37,086,627 and 36,820,048 shares outstanding, respectively
39 39
Treasury stock, at cost; 2,333,099 and 2,151,098 shares, respectively
(162,187) (128,892)
Additional paid-in capital 574,842 537,061
Retained earnings 295,080 259,045
Accumulated other comprehensive gain (loss) (4,353) 222
Total stockholders' equity 703,421 667,475
Total liabilities and stockholders' equity $ 854,521 $ 823,844
See accompanying notes to these condensed consolidated financial statements.
SPS COMMERCE, INC.
3
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands, except per share amounts) (unaudited) 2024 2023 2024 2023
Revenues $ 153,596 $ 130,416 $ 303,172 $ 256,284
Cost of revenues 52,018 44,544 103,505 87,508
Gross profit 101,578 85,872 199,667 168,776
Operating expenses
Sales and marketing 35,691 30,349 72,123 59,433
Research and development 14,366 13,318 30,375 25,880
General and administrative 23,516 21,693 49,423 42,369
Amortization of intangible assets 4,840 3,479 9,178 7,330
Total operating expenses 78,413 68,839 161,099 135,012
Income from operations 23,165 17,033 38,568 33,764
Other income, net 4,056 1,882 7,188 3,157
Income before income taxes 27,221 18,915 45,756 36,921
Income tax expense 9,189 4,233 9,721 6,950
Net income $ 18,032 $ 14,682 $ 36,035 $ 29,971
Other comprehensive income (expense)
Foreign currency translation adjustments (901) 1,615 (4,218) 1,520
Unrealized gain on investments, net of tax of $164, $136, $335 and $269, respectively
491 408 1,004 806
Reclassification of gain on investments into earnings, net of tax of $(238), $(127), $(454) and $(252), respectively
(715) (381) (1,361) (757)
Total other comprehensive income (expense) (1,125) 1,642 (4,575) 1,569
Comprehensive income $ 16,907 $ 16,324 $ 31,460 $ 31,540
Net income per share
Basic $ 0.49 $ 0.40 $ 0.97 $ 0.82
Diluted $ 0.48 $ 0.39 $ 0.96 $ 0.80
Weighted average common shares used to compute net income per share
Basic 37,078 36,593 37,063 36,511
Diluted 37,683 37,426 37,690 37,327
See accompanying notes to these condensed consolidated financial statements.
SPS COMMERCE, INC.
4
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury Stock Additional
Paid-in
Capital 		Retained
Earnings 		Accumulated Other Comprehensive Loss Total
Stockholders'
Equity
(in thousands, except shares) (unaudited) Shares Amount Shares Amount
Balances, March 31, 2023 36,532,756 $ 39 2,151,098 $ (128,892) $ 489,716 $ 208,510 $ (3,484) $ 565,889
Stock-based compensation - - - - 12,237 - - 12,237
Shares issued pursuant to stock awards 78,387 - - - 2,636 - - 2,636
Employee stock purchase plan activity 35,676 - - - 3,895 - - 3,895
Net income - - - - - 14,682 - 14,682
Foreign currency translation adjustments - - - - - - 1,615 1,615
Unrealized gain on investments, net of tax - - - - - - 408 408
Reclassification of gain on investments into earnings, net of tax - - - - - - (381) (381)
Balances, June 30, 2023 36,646,819 $ 39 2,151,098 $ (128,892) $ 508,484 $ 223,192 $ (1,842) $ 600,981
Balances, March 31, 2024 37,049,001 $ 39 2,260,578 $ (148,892) $ 557,998 $ 277,048 $ (3,228) $ 682,965
Stock-based compensation - - - - 10,793 - - 10,793
Shares issued pursuant to stock awards 79,962 - - - 1,054 - - 1,054
Employee stock purchase plan activity 30,185 - - - 4,828 - - 4,828
Repurchases of common stock, net of costs (95,395) - 95,395 (17,483) - - - (17,483)
Reissuances of treasury stock 22,874 - (22,874) 4,188 169 - - 4,357
Net income - - - - - 18,032 - 18,032
Foreign currency translation adjustments - - - - - - (901) (901)
Unrealized gain on investments, net of tax - - - - - - 491 491
Reclassification of gain on investments into earnings, net of tax - - - - - - (715) (715)
Balances, June 30, 2024 37,086,627 $ 39 2,333,099 $ (162,187) $ 574,842 $ 295,080 $ (4,353) $ 703,421
SPS COMMERCE, INC.
5
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Common Stock Treasury Stock Additional
Paid-in
Capital 		Retained
Earnings 		Accumulated Other Comprehensive Gain (Loss) Total
Stockholders'
Equity
(in thousands, except shares) (unaudited) Shares Amount Shares Amount
Balances, December 31, 2022 36,158,046 $ 38 2,151,098 $ (128,892) $ 476,117 $ 193,221 $ (3,411) $ 537,073
Stock-based compensation - - - - 23,412 - - 23,412
Shares issued pursuant to stock awards 450,548 1 - - 4,819 - - 4,820
Employee stock purchase plan activity 38,225 - - - 4,136 - - 4,136
Net income - - - - - 29,971 - 29,971
Foreign currency translation adjustments - - - - - - 1,520 1,520
Unrealized gain on investments, net of tax - - - - - - 806 806
Reclassification of gain on investments into earnings, net of tax - - - - - - (757) (757)
Balances, June 30, 2023 36,646,819 $ 39 2,151,098 $ (128,892) $ 508,484 $ 223,192 $ (1,842) $ 600,981
Balances, December 31, 2023 36,820,048 $ 39 2,151,098 $ (128,892) $ 537,061 $ 259,045 $ 222 $ 667,475
Stock-based compensation - - - - 30,078 - - 30,078
Shares issued pursuant to stock awards 415,997 - - - 2,315 - - 2,315
Employee stock purchase plan activity 32,583 - - - 5,219 - - 5,219
Repurchases of common stock, net of costs (204,875) - 204,875 (37,483) - - - (37,483)
Reissuances of treasury stock 22,874 - (22,874) 4,188 169 - - 4,357
Net income - - - - - 36,035 - 36,035
Foreign currency translation adjustments - - - - - - (4,218) (4,218)
Unrealized gain on investments, net of tax - - - - - - 1,004 1,004
Reclassification of gain on investments into earnings, net of tax - - - - - - (1,361) (1,361)
Balances, June 30, 2024 37,086,627 $ 39 2,333,099 $ (162,187) $ 574,842 $ 295,080 $ (4,353) $ 703,421
See accompanying notes to these condensed consolidated financial statements..
SPS COMMERCE, INC.
6
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(in thousands) (unaudited) 2024 2023
Cash flows from operating activities
Net income $ 36,035 $ 29,971
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes (8,172) (8,654)
Depreciation and amortization of property and equipment 9,377 9,289
Amortization of intangible assets 9,178 7,330
Provision for credit losses 3,646 2,491
Stock-based compensation 31,512 24,661
Other, net (907) 1,143
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable (11,407) (9,937)
Deferred costs (1,996) (5,136)
Other assets and liabilities 1,899 3,614
Accounts payable (1,450) (4,414)
Accrued compensation (10,763) (2,910)
Accrued expenses 1,489 (728)
Deferred revenue 5,965 9,909
Operating leases (900) (959)
Net cash provided by operating activities 63,506 55,670
Cash flows from investing activities
Purchases of property and equipment (8,592) (9,769)
Purchases of investments (78,994) (68,579)
Maturities of investments 105,000 60,000
Acquisition of businesses, net (29,343) -
Net cash used in investing activities (11,929) (18,348)
Cash flows from financing activities
Repurchases of common stock (37,483) -
Net proceeds from exercise of options to purchase common stock 2,314 4,819
Net proceeds from employee stock purchase plan activity 5,219 4,136
Net cash provided by (used in) financing activities (29,950) 8,955
Effect of foreign currency exchange rate changes (476) 94
Net increase in cash and cash equivalents 21,151 46,371
Cash and cash equivalents at beginning of period 219,081 162,893
Cash and cash equivalents at end of period $ 240,232 $ 209,264
See accompanying notes to these condensed consolidated financial statements.
SPS COMMERCE, INC.
7
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
SPS COMMERCE, INC.
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, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels. We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf.
Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.
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, 2023, 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, judgments, 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 sixmonths ended June 30, 2024. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC, for additional information regarding our significant accounting policies.
Accounting Pronouncements Recently Issued and Adopted
Standard Date of Issuance Description Date of Adoption Effect on the Financial Statements
ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures
November 2023 This amendment requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker. 2024 The adoption will result in additional disclosure in our Annual Report on Form 10-K for the year ended December 31, 2024.
ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures
December 2023 This amendment requires that an entity disclose specific categories in the effective tax rate reconciliation table as well as provide disclosure of disaggregated information related to income tax expense, income before income taxes, and income taxes paid. 2025 We are currently evaluating the adoption on our financial statements and anticipate the impact will result in additional disclosure.
SPS COMMERCE, INC.
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Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
NOTE B - Business Acquisitions
Traverse Systems
Effective May 8, 2024, we entered into an asset purchase agreement to acquire certain assets of Traverse Systems LLC ("Traverse Systems"), an industry-leading provider in retailer supply chain performance and vendor management. Total consideration transferred at close was $29.4 million, subject to customary post-close adjustments, which was comprised of $25.0 million paid in cash and 22,874 shares of SPS common stock(valued at $4.4 million, determined based on the opening price of SPS common stock at acquisition date).The shares were issued from SPS treasury shares, see Note J - Stockholders' Equityfor further detail on the treasury share reissuance.
We accounted for the acquisition as a business combination. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Assets acquired primarily comprised of subscriber relationships and developed technology intangible assets, totaling $7.7 million and $3.6 million of estimated fair value, respectively, and $18.4 million was allocated to goodwill based on preliminary measurement. The remainder of the consideration transferred was allocated to net assets acquired other than the intangible assets. The purchase accounting for the acquisition has not been finalized as of June 30, 2024; provisional amounts are primarily related to intangible assets. We will finalize the allocation of the purchase price within the one-year measurement period following the acquisition. The goodwill associated with the acquisition is deductible for income tax purposes.
TIE Kinetix
Effective September 13, 2023, we acquired all of the outstanding equity ownership interests of TIE Kinetix Holding B.V. ("TIE Kinetix"), a leading provider of supply chain digitalization including EDI and e-invoicing in Europe and the United States ("U.S."). Pursuant to the definitive agreement, the purchase price was €63.9 million ($68.7 million at the September 13, 2023 exchange rate), net of cash acquired. The purchase accounting for the acquisition was finalized as of June 30, 2024. The goodwill associated with the acquisition is not deductible for income tax purposes.
Purchase Price Allocation
We accounted for the acquisition as a business combination. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date.
The following table presents the purchase consideration and fair values of acquired assets and liabilities recorded in the Company's condensed consolidated balance sheet as of the acquisition date:
(in thousands)
Cash paid $ 73,558
Estimated fair value of assets and liabilities acquired:
Cash $ 4,859
Accounts receivable 1,311
Other assets 3,717
Intangible assets
Subscriber relationships 24,952
Developed technology 9,349
Current liabilities (3,838)
Deferred revenue (6,421)
Deferred income tax liabilities, net (6,791)
Total fair value of assets and liabilities acquired $ 27,138
Goodwill $ 46,420
SPS COMMERCE, INC.
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Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
The following table summarizes the estimated useful lives for each acquired intangible asset:
Estimated Useful Life
Subscriber relationships 8.0 years
Developed technology 7.0 years
Other Acquisition Activity
Effective April 10, 2024, the Company entered into an asset purchase agreement to acquire Vision33's SAP Business One SPS Integration Technology. Pursuant to the definitive agreement, the purchase price, denominated in Canadian dollars ("CAD"), was $5.8 million CAD ($4.3 million U.S. dollars ["USD"] at the Agreement date exchange rate), of which $4.5 million CAD ($3.3 million USD) was paid in cash at close, with the remainder payable in cash within two years, subject to certain closing conditions. Assets acquired were primarily comprised of developed technology and subscriber relationships, totaling $1.7 million USD and $0.4 million USD of estimated fair value, respectively. The remainder of the consideration transferred, $2.2 million USD, was allocated to goodwill. The goodwill associated with the acquisition is deductible for income tax purposes.
NOTE C - Revenue
We derive our revenues from the following revenue streams:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Recurring revenues:
Fulfillment $ 125,512 $ 105,500 $ 247,365 $ 207,169
Analytics 13,510 12,709 27,524 25,079
Other 4,959 3,314 8,776 6,576
Recurring revenues 143,981 121,523 283,665 238,824
One-time revenues 9,615 8,893 19,507 17,460
Total revenue $ 153,596 $ 130,416 $ 303,172 $ 256,284
Revenues are the amount that reflects the consideration we are contractually and legally entitled to, as well as the amount we expect to collect, in exchange for those services.
Revenue by Geographic Area
Domestic revenue, which we define as revenue that was attributable to customers based within the U.S., was as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Domestic revenue 83 % 84 % 83 % 84 %
No single jurisdiction outside of the U.S. had revenues in excess of 10%.
Recurring Revenues
Recurring revenues consist of recurring subscriptions from customers that utilize our Fulfillment, Analytics, and Other supply chain management products. Revenue for these products is generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our contracts with our recurring revenue customers are recurring in nature, generally ranging from monthly to annual, and generally allow the customer to cancel the contract for any reason with 30 to 90 days' notice. Timing of billings varies by customer and by contract type and generally are either in advance or within 30 days of the service being performed.
Given that the recurring revenue contracts are for one year or less, we have applied the optional exemption to not disclose information about the remaining performance obligations for recurring revenue contracts.
SPS COMMERCE, INC.
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Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
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 generally 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
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Balance, beginning of period $ 17,418 $ 15,287 $ 17,603 $ 14,999
Invoiced set-up fees 5,353 5,739 9,520 9,990
Recognized set-up fees (4,411) (4,048) (8,763) (8,011)
Balance, end of period $ 18,360 $ 16,978 $ 18,360 $ 16,978
Miscellaneous one-time revenues
Miscellaneous one-time fees consist of professional services and testing and certification.
The contract period for these one-time fees is for one year or less and recognized at the time service is provided. We have applied the optional exemption to not disclose information about the remaining performance obligations for miscellaneous one-time fee contracts since they have original durations of one year or less.
NOTE D - Deferred Costs
The deferred costs activity was as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Balance, beginning of period $ 84,248 $ 71,809 $ 82,750 $ 70,179
Incurred deferred costs 23,022 19,304 44,952 37,538
Amortized deferred costs (22,342) (15,858) (42,774) (32,462)
Balance, end of period $ 84,928 $ 75,255 $ 84,928 $ 75,255
SPS COMMERCE, INC.
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Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
NOTE E - Fair Value Measurements
Cash equivalents and investments, as measured at fair value on a recurring basis, consisted of the following:
June 30, 2024 December 31, 2023
Fair Value Level Amortized Cost Unrealized Gains (Losses), net Fair Value Fair Value Level Amortized Cost Unrealized Gains (Losses), net Fair Value
(in thousands)
Cash equivalents:
Money market funds Level 1 $ 187,559 $ - $ 187,559 Level 1 $ 161,233 $ - $ 161,233
Investments:
Certificates of deposit Level 2 6,666 - 6,666 Level 1 6,805 - 6,805
Marketable securities:
Commercial paper Level 2 24,669 219 24,888 Level 2 48,860 694 49,554
$ 218,894 $ 219 $ 219,113 $ 216,898 $ 694 $ 217,592
NOTE F - Allowance for Credit Losses
The allowance for credit losses activity, included in accounts receivable, net, was as follows:
Six Months Ended
June 30,
(in thousands) 2024 2023
Balance, beginning of period $ 3,320 $ 3,066
Provision for credit losses 3,646 2,491
Write-offs, net of recoveries (3,008) (2,457)
Balance, end of period $ 3,958 $ 3,100
NOTE G - Property and Equipment, Net
Property and equipment, net consisted of the following:
(in thousands) June 30, 2024 December 31, 2023
Internally developed software $ 64,731 $ 60,396
Computer equipment 35,205 34,402
Leasehold improvements 15,363 15,387
Office equipment and furniture 10,883 10,966
Property and equipment, cost 126,182 121,151
Less: accumulated depreciation and amortization (91,099) (85,108)
Total property and equipment, net $ 35,083 $ 36,043
Property and equipment, net located at subsidiary and office locations outside of the U.S. was as follows:
June 30, 2024 December 31, 2023
International property and equipment 17 % 15 %
SPS COMMERCE, INC.
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Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
NOTE H - Goodwill and Intangible Assets, Net
Goodwill
The activity in goodwill was as follows:
(in thousands) Six Months Ended
June 30, 2024
Balance, beginning of period $ 249,176
Addition from business acquisitions 20,564
Foreign currency translation (2,685)
Remeasurement from provisional purchase accounting amount 1,817
Balance, end of period $ 268,872
Intangible Assets
Intangible assets, net consisted of the following:
June 30, 2024
($ in thousands) Gross
Carrying
Amount 		Accumulated
Amortization 		Foreign
Currency
Translation 		Net Weighted Average Remaining Amortization Period
Subscriber relationships $ 109,923 $ (37,983) $ (851) $ 71,089 6.5 years
Developed technology 56,018 (19,217) (371) 36,430 5.1 years
$ 165,941 $ (57,200) $ (1,222) $ 107,519 6.0 years
December 31, 2023
($ in thousands) Gross
Carrying
Amount 		Accumulated
Amortization 		Foreign
Currency
Translation 		Net Weighted Average Remaining Amortization Period
Subscriber relationships $ 105,228 $ (32,097) $ 724 $ 73,855 6.6 years
Developed technology 48,843 (15,669) 315 33,489 5.0 years
$ 154,071 $ (47,766) $ 1,039 $ 107,344 6.1 years
The estimated future annual amortization expense related to intangible assets is as follows:
(in thousands)
Remainder of 2024 $ 9,908
2025 19,689
2026 18,685
2027 18,211
2028 16,873
Thereafter 24,153
Total future amortization $ 107,519
SPS COMMERCE, INC.
13
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
NOTE I - Commitments and Contingencies
Leases
The components of lease expense were as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Operating lease cost $ 798 $ 779 $ 1,612 $ 1,578
Variable lease cost 965 950 1,919 1,878
$ 1,763 $ 1,729 $ 3,531 $ 3,456
Supplemental cash flow information related to leases was as follows:
Six Months Ended
June 30,
(in thousands) 2024 2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 2,423 $ 1,329
Right-of-use assets obtained in exchange for operating lease liabilities 533 268
Supplemental balance sheet information related to operating leases was as follows:
June 30, 2024 December 31, 2023
Weighted-average remaining lease term 2.8 years 3.1 years
Weighted-average discount rate 4.1 % 4.0 %
At June 30, 2024, our future minimum payments under operating leases were as follows:
(in thousands)
Remainder of 2024 $ 3,047
2025 4,307
2026 4,082
2027 1,435
Thereafter 222
Total future gross payments $ 13,093
Less: imputed interest (748)
Total operating lease liabilities $ 12,345
Purchase Commitments
We have entered into separate noncancelable agreements with computing infrastructure, productivity software, customer relationship management, and performance and security data analytics vendors for services through 2026. At June 30, 2024, our remaining purchase commitments and estimated purchase timing were as follows:
(in thousands)
Remainder of 2024 $ 5,779
2025 14,187
2026 5,244
Total estimated future purchases $ 25,210
SPS COMMERCE, INC.
14
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
NOTE J - Stockholders' Equity
ShareRepurchase Programs
Our board of directors has authorized a program to repurchase our common stock. Details of the program and activity thereunder through June 30, 2024 were as follows:
(in thousands) Effective Date Expiration Date Share Value Authorized for Repurchase Share Value Repurchased Unused & Expired Share Repurchase Value Share Value Available for Future Repurchase
2022 Program August 2022 July 2024 $ 50,000 $ 40,471 N/A $ 9,529
Share repurchases are accounted for as the trade date occurs and are reflected in the condensed consolidated financial statements net of the costs incurred to acquire the shares. Share repurchases that have not yet settled in cash are included in accrued expenses in the condensed consolidated balance sheet. The share repurchase activity by period was as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands, except shares and per share amounts) 2024 2023 2024 2023
Number of shares repurchased 95,395 - 204,875 -
Total share repurchased cost $ 17,483 $ - $ 37,483 $ -
Average total cost per repurchased share $ 183.27 $ - $ 182.96 $ -
On July 24, 2024 (announced July 25, 2024), our board of directors authorized a program to repurchase up to $100.0 million of our common stock, excluding costs to obtain. Under the program, purchases may be made from time to time in the open market or in privately negotiated purchases, or both. The share repurchase program will become effective August 23, 2024 and expires on July 24, 2026.
Treasury Stock Reissuance
In connection with the acquisition of Traverse Systems, the Company re-issued treasury shares as part of the purchase consideration (see Note B - Business Combinationsfor further information). Treasury stock reissuances are accounted for using the specific identification method, with gains (or losses to the extent of previously recognized gains) recognized in additional paid-in capital and any remaining loss recorded in retained earnings.
NOTE K - 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. If retirement-eligible employees have not given their required notice, expense is recognized on a pro-rata basis over the notice period prior to retirement; if they have given their notice, expense is recognized over the notice period; if they have given their notice and completed the notice period, expense is recognized upon grant. At June 30, 2024, there were 12.3 million shares available for grant under approved equity compensation plans.
SPS COMMERCE, INC.
15
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Stock-based compensation expense was allocated in the condensed consolidated statements of comprehensive income as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Cost of revenues $ 2,730 $ 2,586 $ 6,812 $ 5,089
Operating expenses
Sales and marketing 2,512 2,528 6,956 4,951
Research and development 1,820 1,812 5,062 3,589
General and administrative 4,432 5,955 12,682 11,032
$ 11,494 $ 12,881 $ 31,512 $ 24,661
Stock-based compensation expense by grant type or plan was as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Stock options $ 506 $ 494 $ 1,003 $ 985
PSUs 2,445 3,499 4,890 7,424
RSUs & DSUs 6,952 7,381 22,443 13,443
RSAs 89 115 215 223
ESPP 802 748 1,523 1,337
401(k) stock match 700 644 1,438 1,249
$ 11,494 $ 12,881 $ 31,512 $ 24,661
As of June 30, 2024, there was $74.8 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a primarily straight-line basis over a weighted average period of 2.6 years.
Stock Options
Our stock option activity was as follows:
Six Months Ended
June 30, 2024
Options (#) Weighted Average
Exercise Price
($/share)
Outstanding, beginning of period 346,822 $ 80.02
Granted 33,930 196.37
Exercised (48,400) 47.83
Forfeited (760) 167.08
Outstanding, end of period 331,592 $ 96.43
Of the total outstanding options at June 30, 2024, 0.3 million were exercisable. The outstanding and exercisable options had a weighted average exercise price of $77.15 per share and a weighted average remaining contractual life of 3.0 years.
SPS COMMERCE, INC.
16
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
The weighted average grant date fair value of options granted during the six months ended June 30, 2024 was $69.86 per share. This was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
Life (in years) 4.1
Volatility 36.7 %
Dividend yield -
Risk-free interest rate 4.3 %
Performance Share Units, Restricted Stock Units and Awards, and Deferred Stock Units
In each of the quarters ended March 31, 2024, 2023, 2022, and 2021 we granted PSU awards with a target performance level. These awards are earned based upon our Company's total shareholder return as compared to an indexed total shareholder return over the course of a fiscal based three-year performance period, starting in the year of grant. Earned awards vest in the quarter following the conclusion of the performance period. In the three months ended March 31, 2024, PSU awards granted in 2021 vested at the maximum performance level and 0.1 million shares of common stock were issued.
Activity for our PSUs, RSUs, RSAs, and DSUs in aggregate was as follows:
Six Months Ended
June 30, 2024
# Weighted Average Grant
Date Fair Value
($/share)
Outstanding, beginning of period 773,414 $ 147.50
Granted 324,896 179.31
Vested and common stock issued (366,823) 124.01
Forfeited (3,423) 154.70
Outstanding, end of period 728,064 $ 173.50
The number of PSUs, RSUs, RSAs, and DSUs outstanding at June 30, 2024 included less than 0.1 million units that have vested, but the shares of common stock have not yet been issued, pursuant to the terms of the underlying agreements.
Employee Stock Purchase Plan
Our ESPP activity was as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands, except shares) 2024 2023 2024 2023
Amounts for shares purchased $ 4,828 $ 3,895 $ 5,219 $ 4,136
Shares purchased 30,185 35,676 32,583 38,225
A total of 1.6 million shares of common stock are reserved for issuance under the plan at June 30, 2024.
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:
Life (in years) 0.5
Volatility 30.9 %
Dividend yield -
Risk-free interest rate 5.3 %
SPS COMMERCE, INC.
17
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
NOTE L - Income Taxes
We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust the provision for discrete tax items recorded in the period. Our provisions for income taxes includes current federal, state, and foreign income tax expense, as well as deferred tax expense.
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.
NOTE M - Other Income and Expense
Other income, net included the following:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Investment income $ 2,794 $ 1,611 $ 5,673 $ 2,737
Realized gain from foreign currency on cash and investments held 1,255 290 1,559 427
Other income (expense), net 7 (19) (44) (7)
Total other income, net $ 4,056 $ 1,882 $ 7,188 $ 3,157
NOTE N - Net Income Per Share
The components and computation of basic and diluted net income per share were as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
(in thousands, except per share amounts) 2024 2023 2024 2023
Numerator
Net income $ 18,032 $ 14,682 $ 36,035 $ 29,971
Denominator
Weighted average common shares outstanding, basic 37,078 36,593 37,063 36,511
Options to purchase common stock and ESPP 157 274 167 291
PSUs, RSUs, RSAs, and DSUs 448 559 460 525
Weighted average common shares outstanding, diluted 37,683 37,426 37,690 37,327
Net income per share
Basic $ 0.49 $ 0.40 $ 0.97 $ 0.82
Diluted $ 0.48 $ 0.39 $ 0.96 $ 0.80
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
June 30, 		Six Months Ended
June 30,
(in thousands) 2024 2023 2024 2023
Anti-dilutive shares 276 37 227 63
SPS COMMERCE, INC.
18
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023. 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, 2023, 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, grocers, distributors, suppliers, and logistics firms to communicate and collaborate by simplifying how they manage and share item, inventory, order and sales data across omnichannel retail channels. We deliver our products using a full-service model, which includes industry-leading technology and a team of experts that optimize, update, and operate the technology on customers' behalf.
Our products enable customers to increase supply chain performance, optimize inventory levels and sell-through, reduce operational costs, improve order visibility, and satisfy consumer demands for a seamless omnichannel experience.
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, metrics, and non-GAAP measures as discussed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."
To supplement our condensed consolidated 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 financial 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 financial 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. We believe these non-GAAP financial measures are useful to an investor as they are widely used in evaluating operating performance. Adjusted EBITDA and Adjusted EBITDA Margin are used to measure operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of capital structure and the method by which assets were acquired.
SPS COMMERCE, INC.
19
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
These non-GAAP financial 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 condensed consolidated 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."
Results of Operations
Three Months Ended June 30, 2024Compared to Three Months Ended June 30, 2023
The following table presents our results of operations for the periods indicated:
Three Months Ended June 30,
2024 2023 Change
($ in thousands) $
% of revenue(1)
$
% of revenue(1)
$
%(2)
Revenues $ 153,596 100 % $ 130,416 100 % $ 23,180 18 %
Cost of revenues 52,018 34 44,544 34 7,474 17
Gross profit 101,578 66 85,872 66 15,706 18
Operating expenses
Sales and marketing 35,691 23 30,349 23 5,342 18
Research and development 14,366 9 13,318 10 1,048 8
General and administrative 23,516 15 21,693 17 1,823 8
Amortization of intangible assets 4,840 3 3,479 3 1,361 39
Total operating expenses 78,413 51 68,839 53 9,574 14
Income from operations 23,165 15 17,033 13 6,132 36
Other income, net 4,056 3 1,882 1 2,174 NM
Income before income taxes 27,221 18 18,915 15 8,306 44
Income tax expense 9,189 6 4,233 3 4,956 NM
Net income $ 18,032 12 % $ 14,682 11 % $ 3,350 23 %
(1) Amounts in column may not foot due to rounding
(2) NM = not meaningful
Revenues-Revenues increased for the 94th consecutive quarter. The increase in revenue period-over-period 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 5% to approximately 44,950 at June 30, 2024 from approximately 43,000 at June 30, 2023,primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure as our recurring revenue customer, and therefore a majority of the increased revenue was generated from existing recurring revenue customers.
•Approximately 1,000 recurring revenue customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix. Additionally, approximately 50 recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems.
•Wallet share increased 13% to approximately $12,850 for the three months ended June 30, 2024 from approximately $11,350 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.
SPS COMMERCE, INC.
20
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Recurring revenues increased 18% to $144.0 million for the three months ended June 30, 2024compared to the three months ended June 30, 2023. Recurring revenues accounted for 94% of our total revenues for the three months ended June 30, 2024compared to 93% for the same period in 2023. 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 penetration of our market.
Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $4.7 million in personnel-related costs.
Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $3.9 million in personnel-related costs.
Research and Development Expenses -The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $1.5 million in personnel-related costs.
General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $1.9 million in personnel-related costs, partially offset by a decrease in stock-based compensation of $1.5 million. Additionally, there was an increase in credit loss expense of $1.0 million due primarily to overall business growth.
Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.
Other Income, Net -The increase in other income, net was primarily due to increased investment income from favorable interest rates and realized gains due to favorable foreign currency exchange rates.
Income Tax Expense - The increase in income tax expense was primarily driven by an increase in pre-tax income, as well as decreases in the deductible excess tax benefits from current period equity award settlements and deductible 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 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, and other adjustments as necessary for a fair presentation. Other adjustments included the expense impact from disposals of certain capitalized internally developed software. Net income is the comparable GAAP measure of financial performance.
The following table provides a reconciliation of net income to Adjusted EBITDA:
Three Months Ended
June 30,
(in thousands) 2024 2023
Net income $ 18,032 $ 14,682
Income tax expense 9,189 4,233
Depreciation and amortization of property and equipment 4,683 4,663
Amortization of intangible assets 4,840 3,479
Stock-based compensation expense 11,494 12,881
Realized gain from foreign currency on cash and investments held (1,255) (290)
Investment income (2,794) (1,611)
Other - 134
Adjusted EBITDA $ 44,189 $ 38,171
SPS COMMERCE, INC.
21
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Adjusted EBITDA Margin -Adjusted EBITDA Margin 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
June 30,
(in thousands, except Margin and Adjusted EBITDA Margin) 2024 2023
Revenue $ 153,596 $ 130,416
Net income 18,032 14,682
Margin 12 % 11 %
Adjusted EBITDA 44,189 38,171
Adjusted EBITDA Margin 29 % 29 %
Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for 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, including the expense impact from disposals of certain capitalized internally developed software, 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. Net income per share, the comparable GAAP measure of financial performance, consists of net income divided by the weighted average number of shares of common and diluted stock outstanding during each period.
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 per share to non-GAAP income per share:
Three Months Ended
June 30,
(in thousands, except per share amounts) 2024 2023
Net income $ 18,032 $ 14,682
Stock-based compensation expense 11,494 12,881
Amortization of intangible assets 4,840 3,479
Realized gain from foreign currency on cash and investments held (1,255) (290)
Other - 134
Income tax effects of adjustments (3,066) (5,199)
Non-GAAP income $ 30,045 $ 25,687
Shares used to compute net income and non-GAAP income per share
Basic 37,078 36,593
Diluted 37,683 37,426
Net income per share, basic $ 0.49 $ 0.40
Non-GAAP adjustments to net income per share, basic 0.32 0.30
Non-GAAP income per share, basic $ 0.81 $ 0.70
Net income per share, diluted $ 0.48 $ 0.39
Non-GAAP adjustments to net income per share, diluted 0.32 0.30
Non-GAAP income per share, diluted $ 0.80 $ 0.69
SPS COMMERCE, INC.
22
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Six Months Ended June 30, 2024Compared to Six Months Ended June 30, 2023
The following table presents our results of operations for the periods indicated:
Six Months Ended June 30,
2024 2023 Change
($ in thousands) $
% of revenue(1)
$
% of revenue(1)
$
%(2)
Revenues $ 303,172 100 % $ 256,284 100 % $ 46,888 18 %
Cost of revenues 103,505 34 87,508 34 15,997 18
Gross profit 199,667 66 168,776 66 30,891 18
Operating expenses
Sales and marketing 72,123 24 59,433 23 12,690 21
Research and development 30,375 10 25,880 10 4,495 17
General and administrative 49,423 16 42,369 17 7,054 17
Amortization of intangible assets 9,178 3 7,330 3 1,848 25
Total operating expenses 161,099 53 135,012 53 26,087 19
Income from operations 38,568 13 33,764 13 4,804 14
Other income, net 7,188 2 3,157 1 4,031 NM
Income before income taxes 45,756 15 36,921 14 8,835 24
Income tax expense 9,721 3 6,950 3 2,771 40
Net income $ 36,035 12 % $ 29,971 12 % $ 6,064 20 %
(1) Amounts in column may not foot due to rounding
(2) NM = "not meaningful"
Revenues-Revenues increased for the 94th consecutive quarter. The increase in revenue period-over-period 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 5% to approximately 44,950 at June 30, 2024 from approximately 43,000 at June 30, 2023,primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. New recurring revenue customers do not have a meaningful contribution to revenue at the beginning of their tenure as our recurring revenue customer, and therefore a majority of the increased revenue was generated from existing recurring revenue customers.
•Approximately 1,000 recurring revenue customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix. Additionally, approximately 50 recurring revenue customers were added in May 2024 due to the acquisition of the existing customer base of Traverse Systems.
•Wallet share increased 13% to approximately $12,650 for the six months ended June 30, 2024 from approximately $11,200 for the same period in 2023. This was primarily attributable to increased usage of our products by our recurring revenue customers.
Recurring revenues increased 19% to $283,665 for the six months ended June 30, 2024compared to the sixmonths ended June 30, 2023. Recurring revenues accounted for 94% of our total revenues for the six months ended June 30, 2024compared to 93% for the same period in 2023. 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 penetration of our market.
Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $9.5 million in personnel-related costs, and an increase of $1.7 million in stock-based compensation. Additionally, there was an increase in our software subscriptions of $1.9 million due primarily to the general growth of our business.
SPS COMMERCE, INC.
23
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $8.1 million in personnel-related costs, and an increase of $2.0 million in stock-based compensation.
Research and Development Expenses -The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $3.0 million in personnel-related costs, and an increase of $1.5 million in stock-based compensation.
General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $3.4 million in personnel-related costs, and an increase of $1.7 million in stock-based compensation. Additionally, there was an increase in credit loss expense of $2.0 million due primarily to overall business growth.
Amortization of Intangible Assets -The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.
Other Income, Net -The increase in other income, net was primarily due to increased investment income from favorable interest rates and realized gains due to favorable foreign currency exchange rates.
Income Tax Expense - The increase in income tax expense was primarily driven by an increase in pre-tax income, as well as decreases in the deductible excess tax benefits from current period equity award settlements and deductible 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 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, and other adjustments as necessary for a fair presentation. Other adjustments included the expense impact from disposals of certain capitalized internally developed software. Net income is the comparable GAAP measure of financial performance.
The following table provides a reconciliation of net income to Adjusted EBITDA:
Six Months Ended
June 30,
(in thousands) 2024 2023
Net income $ 36,035 $ 29,971
Income tax expense 9,721 6,950
Depreciation and amortization of property and equipment 9,377 9,289
Amortization of intangible assets 9,178 7,330
Stock-based compensation expense 31,512 24,661
Realized gain from foreign currency on cash and investments held (1,559) (427)
Investment income (5,673) (2,737)
Other - 134
Adjusted EBITDA $ 88,591 $ 75,171
Adjusted EBITDA Margin -Adjusted EBITDA Margin consists of Adjusted EBITDA divided by revenue. Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue.
SPS COMMERCE, INC.
24
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
The following table provides a comparison of Margin to Adjusted EBITDA Margin:
Six Months Ended
June 30,
(in thousands, except Margin and Adjusted EBITDA Margin) 2024 2023
Revenue $ 303,172 $ 256,284
Net income 36,035 29,971
Margin 12 % 12 %
Adjusted EBITDA 88,591 75,171
Adjusted EBITDA Margin 29 % 29 %
Non-GAAP Income per Share - Non-GAAP income per share consists of net income adjusted for 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, including the expense impact from disposals of certain capitalized internally developed software, 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. Net income per share, the comparable GAAP measure of financial performance, consists of net income divided by the weighted average number of shares of common and diluted stock outstanding during each period.
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 per share to non-GAAP income per share:
Six Months Ended
June 30,
(in thousands, except per share amounts) 2024 2023
Net income $ 36,035 $ 29,971
Stock-based compensation expense 31,512 24,661
Amortization of intangible assets 9,178 7,330
Realized gain from foreign currency on cash and investments held (1,559) (427)
Other - 134
Income tax effects of adjustments (12,620) (11,108)
Non-GAAP income $ 62,546 $ 50,561
Shares used to compute net income and non-GAAP income per share
Basic 37,063 36,511
Diluted 37,690 37,327
Net income per share, basic $ 0.97 $ 0.82
Non-GAAP adjustments to net income per share, basic 0.72 0.56
Non-GAAP income per share, basic $ 1.69 $ 1.38
Net income per share, diluted $ 0.96 $ 0.80
Non-GAAP adjustments to net income per share, diluted 0.70 0.55
Non-GAAP income per share, diluted $ 1.66 $ 1.35
SPS COMMERCE, INC.
25
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Critical Accounting Policies and Estimates
This discussion of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in accordance with GAAP and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates, judgments, 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, internally developed software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.
During the six months ended June 30, 2024, 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, 2023, as filed with the SEC.
Liquidity and Capital Resources
Sources of Liquidity
As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $271.8 million and net accounts receivable of $55.4 million. Our investments are selected in accordance with our investment policy, with a goal to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. Our cash equivalents and short-term investments are held in highly liquid money market funds, certificates of deposit, and commercial paper.
Statements of Cash Flows Summary
The summary of activity within the condensed consolidated statements of cash flows was as follows:
Six Months Ended
June 30,
(in thousands) 2024 2023
Net cash provided by operating activities $ 63,506 $ 55,670
Net cash used in investing activities (11,929) (18,348)
Net cash provided by (used in) financing activities (29,950) 8,955
Operating Activities
The increase in cash provided by operating activities from the six months ended June 30, 2023 to the six months ended June 30, 2024 was primarily due to an increase in net income as adjusted for non-cash expenses, of $14.4 million,driven by continued growth in revenue, as partially offset by growth in cash paid for expenses to operate the growing business. Additionally, fluctuations in operating assets and liabilities resulted in a decrease of $6.6 million, driven by changes in the amount and timing of settlements and general growth of the business.
Investing Activities
The decrease in cash used in investing activities from the six months ended June 30, 2023 to the six months ended June 30, 2024 was primarily due to an increase in cash provided by net maturities of investments of $34.6million year-over-year, partially offset by an increase in cash used to acquire businesses of $29.3 millionyear-over-year to further grow our business.
SPS COMMERCE, INC.
26
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Financing Activities
The increase in cash used in financing activities from the six months ended June 30, 2023 to the six months ended June 30, 2024 was primarily due toan increase in cash used for share repurchases of $37.5million year-over-year to continue to deliver shareholder value.
Contractual and Commercial Commitment Summary
Our contractual obligations and commercial commitments as of June 30, 2024 are summarized below:
Payments Due by Period
(in thousands) Less Than
1 Year 		1-3 Years 3-5 Years More Than
5 Years 		Total
Operating lease obligations, including imputed interest $ 4,844 $ 7,896 $ 291 $ 62 $ 13,093
Purchase commitments 13,412 11,798 - - 25,210
Total $ 18,256 $ 19,694 $ 291 $ 62 $ 38,303
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.
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.
We believe our cash, cash equivalents, investments, and cash flows from our 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 sixmonths ended June 30, 2024 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.
SPS COMMERCE, INC.
27
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity Risk
The principal objectives of our investment activities are to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. We are exposed to market risk related to changes in interest rates. However, based on the nature and current level of our cash, cash equivalents, and investments, we believe there is no material risk exposure. We do not enter into investments for trading or speculative purposes.
We did not have any variable interest rate outstanding debt as of June 30, 2024. 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 dollar, Canadian dollar, and Euro. Our 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 predominate exposure to foreign currency exchange rates are due to non-monetary assets held in currencies other than the U.S. dollar, and thus fluctuations in currencies primarily result in comprehensive income (loss), not net income (loss).
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 June 30, 2024, we maintained 10% 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 or result in a material foreign currency impact classified within net income (loss).
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 June 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In September 2023, we acquired the TIE Kinetix business, and in May 2024, we acquired the Traverse Systems business. Pursuant to the SEC's general guidance that the assessment of a recently acquired business' internal control over financial reporting may be omitted in the year of acquisition, the scope of our most recent assessment did not include TIE Kinetix nor Traverse Systems. We are currently in the process of incorporating internal controls specific to TIE Kinetix and Traverse Systems that we believe are appropriate and necessary to consolidate and report upon our financial results.
Excluding net intangible assets and goodwill, TIE Kinetix and Traverse Systems combined represented less than 5% of our consolidated assets as of June 30, 2024 and less than 5% of our consolidated revenues for the six months ended June 30, 2024.
SPS COMMERCE, INC.
28
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to, or aware of, any claims or actions that would have a material adverse effect on our business, financial condition, or results of operations. 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. We believe that we have obtained adequate insurance coverage and/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, 2023, as filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Equity Securities
On May 8, 2024, we issued 22,874 shares of our common stock to the sellers of Traverse Systems as partial consideration for the acquisition. The offer and issuance of these shares of common stock were deemed to be exempt from registration under The Securities Act of 1933 ("Securities Act") in reliance on Section 4(a)(2) of the Securities Act promulgated thereunder as a transaction by an issuer not involving a public offering.
(c) ShareRepurchases
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 (1)
April 1 - 30, 2024 30,893 $ 173.11 30,893 $ 21,662,000
May 1 - 31, 2024 34,632 191.73 34,632 15,022,000
June 1 - 30, 2024 29,870 183.90 29,870 9,529,000
Total 95,395 $ 183.25 95,395 $ 9,529,000
For more information regarding our sharerepurchase programs, refer to Note Jto our condensed consolidated financial statements, included in Part I of this Quarterly Report on Form 10-Q.
(1) On July 26, 2022 (announced July 27, 2022), our board of directors authorized a program to repurchase up to $50.0 million of our common stock, excluding costs to obtain. Under the program, purchases may be made from time to time in the open market or in privately negotiated purchases, or both. The share repurchase program became effective August 26, 2022 and expires on July 26, 2024.
On July 23, 2024 (announced July 25, 2024), our board of directors authorized a program to repurchase up to $100.0 million of our common stock, excluding costs to obtain. Under the program, purchases may be made from time to time in the open market or in privately negotiated purchases, or both. The share repurchase program will become effective August 23, 2024 and expires on July 24, 2026.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
SPS COMMERCE, INC.
29
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
Item 5. Other Information
Insider Adoption or Termination of Trading Arrangements
During the three months ended June 30, 2024, the following directors and officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted written plans for the sale of our securities that are intended to satisfy the affirmative defense of Rule 10b5-1(c) of the Exchange Act:
Name Title Adoption Date Earliest Sale Date Expiration or Termination Date
Aggregate Number of Shares of the Company's Common Stock to be Sold(1)
Daniel Juckniess Chief Revenue Officer May 31, 2024 August 30, 2024 May 23, 2025 28,794
Chadwick Collins Chief Executive Officer and Director May 29, 2024 November 2, 2024 March 15, 2025 21,640
James Ramsey Director May 28, 2024 August 27, 2024 May 14, 2026 5,732
Kimberly Nelson Chief Financial Officer May 20, 2024 August 19, 2024 March 31, 2025 32,560
James Frome Chief Operating Officer May 17, 2024 August 16, 2024 March 31, 2026 98,562
(1) The number of shares is the maximum number of shares to be sold but the actual activity may be lower. Transaction(s) may be contingent upon future events such as performance factors, tax withholding obligations, and/or future market price(s).
There were no other Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1(c) trading arrangements adopted, modified or terminated by the Company's officers and directors during the three months ended June 30, 2024.
Item 6. Exhibits
Number Description
3.1
3.2
10.1
10.2
31.1
Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.2
Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101
Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith). The XBRL instance document does not appear in the Interactive Data File because its tags are embedded within the Inline XBRL document.
104
The cover page from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, formatted in Inline XBRL.
SPS COMMERCE, INC.
30
Form 10-Q for the Quarterly Period ended June 30, 2024
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: July 25, 2024 SPS COMMERCE, INC.
/s/ KIMBERLY NELSON
Kimberly Nelson
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
SPS COMMERCE, INC.
31
Form 10-Q for the Quarterly Period ended June 30, 2024