What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-26 · 132 added, 31 removed, 138 unchanged (54% of the section changed)

29 unchanged sentences

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2023

Form 10-Q for the Quarterly Period ended June 30, 2023

Results of Operations

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

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

Three Months Ended March 31,

Three Months Ended June 30,

2023 2022 Change

11 unchanged sentences

Income from operations 17,033 13.1 15,968 14.6 1,065 6.7

Other income, net 1,276 1.0 423 0.4 853 201.7

Other income (expense), net 1,882 1.4 (1,338) (1.2) 3,220 (240.7)

Income before income taxes 18,915 14.5 14,630 13.4 4,285 29.3

5 unchanged sentences

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 13% to 42,750 at March 31, 2023 from 37,900 at March 31, 2022 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions.

• Wallet share increased 7% to $11,050 for the three months ended March 31, 2023 from $10,350 for the same period in 2022.

• The number of recurring revenue customers increased 11% to 43,000 at June 30, 2023 from 38,650 at June 30, 2022 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions.

• Wallet share increased 8% to $11,350 for the three months ended June 30, 2023 from $10,550 for the same period in 2022.

This was primarily attributable to increased usage of our products by our recurring revenue customers.

Recurring revenues increased 20% to $117.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Recurring revenues accounted for 93% of our total revenues for the three months ended March 31, 2023 and 2022.

Recurring revenues increased 20% to $121.5 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Recurring revenues accounted for 93% of our total revenues for the three months ended June 30, 2023 and 2022.

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 $5.8 million in personnel-related costs, and an increase of $0.7 million in software subscriptions.

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $5.0 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 $3.6 million in personnel-related costs.

Research and Development Expenses - No significant changes.

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $1.1 million in personnel-related costs.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2023

General and Administrative Expenses - The increase in general and administrative expense was primarily due to increased headcount, which resulted in an increase of $1.5 million in personnel-related costs.

Additionally, there were also increases in stock-based compensation of $1.7 million and $1.0 million in charitable contributions.

Form 10-Q for the Quarterly Period ended June 30, 2023

General and Administrative Expenses - The increase in general and administrative expense was primarily related to increased stock-based compensation of $2.8 million.

Additionally, the increase was due to supporting continued business growth, including an increase in headcount.

The increase in headcount resulted in an increase in personnel-related costs of $1.1 million.

Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.

Other Expense, Net - No significant changes.

Income Tax Expense - The decrease in income tax expense was primarily driven by the increase in the excess tax deductions from current period equity award settlements, partially offset by an increase in pre-tax income.

Other Income (Expense), Net - The increase in other income (expense), net was primarily due to favorable investment returns and foreign currency exchange rate changes.

Income Tax Expense - The increase in income tax expense was primarily driven by the increase pre-tax income, as partially offset by changes in the excess tax deductions from current period equity award settlements.

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 or loss, and other adjustments as necessary for a fair presentation.

Other adjustments included the expense impact from the 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:

6 unchanged sentences

Stock-based compensation expense 12,881 8,661

Realized gain from foreign currency on cash and investments held (137) (468)

Realized (gain) loss from foreign currency on cash and investments held (290) 1,327

Investment income (1,611) (172)

11 unchanged sentences

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2023

Form 10-Q for the Quarterly Period ended June 30, 2023

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, 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.

Other adjustments included the expense impact from the disposals of certain capitalized internally developed software.

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 to non-GAAP income per share:

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

Three Months Ended

3 unchanged sentences

Amortization of intangible assets 3,479 2,468

Realized gain from foreign currency on cash and investments held (137) (468)

Realized (gain) loss from foreign currency on cash and investments held (290) 1,327

Income tax effects of adjustments (5,199) (3,491)

Non-GAAP income $ 25,687 $ 19,718

Shares used to compute non-GAAP income per share

Shares used to compute net income and non-GAAP income per share

Basic 36,593 36,085

Diluted 37,426 36,862

Non-GAAP income per share

Net income per share, basic $ 0.40 $ 0.30

Non-GAAP adjustments to net income per share, basic 0.30 0.25

Non-GAAP income per share, basic $ 0.70 $ 0.55

Net income per share, diluted $ 0.39 $ 0.29

Non-GAAP adjustments to net income per share, diluted 0.30 0.24

Non-GAAP income per share, diluted $ 0.69 $ 0.53

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2023

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

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

Six Months Ended June 30,

2023 2022 Change

($ in thousands) $ % of revenue (1)

$ % of revenue (1)

Revenues $ 256,284 100.0 % $ 214,371 100.0 % $ 41,913 19.6 %

Cost of revenues 87,508 34.1 72,919 34.0 14,589 20.0

Gross profit 168,776 65.9 141,452 66.0 27,324 19.3

Operating expenses

Sales and marketing 59,433 23.2 49,237 23.0 10,196 20.7

Research and development 25,880 10.1 22,133 10.3 3,747 16.9

General and administrative 42,369 16.5 32,666 15.2 9,703 29.7

Amortization of intangible assets 7,330 2.9 4,938 2.3 2,392 48.4

Total operating expenses 135,012 52.7 108,974 50.8 26,038 23.9

Income from operations 33,764 13.2 32,478 15.2 1,286 4.0

Other income (expense), net 3,157 1.2 (915) (0.4) 4,072 (445.0)

Income before income taxes 36,921 14.4 31,563 14.7 5,358 17.0

Income tax expense 6,950 2.7 8,207 3.8 (1,257) (15.3)

Net income $ 29,971 11.7 % $ 23,356 10.9 % $ 6,615 28.3 %

(1) Amounts in column may not foot due to rounding

Revenues - The increase in revenue resulted from two primary factors:

• Wallet share increased 7% to $11,200 for the six months ended June 30, 2023 from $10,450 for the same period in 2022.

The increase was primarily attributable to increased usage of our solutions by our recurring revenue customers.

Recurring revenues increased 20% to $238.8 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Recurring revenues from recurring revenue customers accounted for 93% of our total revenues for the six months ended June 30, 2023 and 2022, 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.

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in an increase of $10.8 million in personnel-related costs and an increase of $1.4 million of software subscriptions.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increases of $7.0 million in personnel-related costs, $1.0 million in stock-based compensation, and $1.0 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 $2.3 million in personnel-related costs.

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2023

General and Administrative Expenses - The increase in general and administrative expense was primarily related to increased stock-based compensation of $4.5 million.

Additionally, the increase was due to supporting continued business growth, including an increase in headcount.

The increase in headcount resulted in an increase in personnel-related costs of $2.5 million and an increase of $1.0 million of software subscriptions.

Additionally, there was an increase in charitable contributions of $1.0 million.

Amortization of Intangible Assets - The increase in amortization of intangible assets was driven by acquired intangible assets related to recent business combinations.

Other Income (Expense), Net - The increase in other income (expense), net was primarily due to favorable investment returns and foreign currency exchange rate changes.

Income Tax Expense - The decrease in income tax expense was primarily driven by the change in the excess tax deductions due to the current period equity award settlements, as partially offset by an increase in pre-tax income.

Other adjustments included the expense impact from the 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

(in thousands) 2023 2022

Net income $ 29,971 $ 23,356

Income tax expense 6,950 8,207

Depreciation and amortization of property and equipment 9,289 7,814

Amortization of intangible assets 7,330 4,938

Stock-based compensation expense 24,661 17,676

Realized (gain) loss from foreign currency on cash and investments held (427) 859

Investment income (2,737) (220)

Adjusted EBITDA $ 75,171 $ 62,630

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:

Six Months Ended

(in thousands, except Margin and Adjusted EBITDA Margin) 2023 2022

Revenue $ 256,284 $ 214,371

Net income 29,971 23,356

Margin 12 % 11 %

Adjusted EBITDA 75,171 62,630

Adjusted EBITDA Margin 29 % 29 %

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended June 30, 2023

Other adjustments included the expense impact from the disposals of certain capitalized internally developed software.

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

(in thousands, except per share amounts) 2023 2022

Net income $ 29,971 $ 23,356

Stock-based compensation expense 24,661 17,676

Amortization of intangible assets 7,330 4,938

Realized (gain) loss from foreign currency on cash and investments held (427) 859

Income tax effects of adjustments (11,108) (6,710)

Non-GAAP income $ 50,561 $ 40,119

Shares used to compute net income and non-GAAP income per share

Basic 36,511 36,110

Diluted 37,327 36,897

Net income per share, basic $ 0.82 $ 0.65

Non-GAAP adjustments to net income per share, basic 0.56 0.46

Non-GAAP income per share, basic $ 1.38 $ 1.11

Net income per share, diluted $ 0.80 $ 0.63

Non-GAAP adjustments to net income per share, diluted 0.55 0.46

Non-GAAP income per share, diluted $ 1.35 $ 1.09

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2023

Form 10-Q for the Quarterly Period ended June 30, 2023

Critical Accounting Policies and Estimates

6 unchanged sentences

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 three months ended March 31, 2023, there were no changes in our critical accounting policies or estimates.

During the six months ended June 30, 2023, 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, 2022, as filed with the SEC.

Liquidity and Capital Resources

As of March 31, 2023 , our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $233.5 million and net accounts receivable of $43.4 million.

As of June 30, 2023 , our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $270.2 million and net accounts receivable of $45.0 million.

Our investments are selected in accordance with our investment policy, with a goal of maintaining liquidity and capital preservation.

1 unchanged sentence

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

Three Months Ended

Six Months Ended

(in thousands) 2023 2022

Net cash provided by operating activities $ 55,670 $ 36,785

Net cash provided by (used in) investing activities (4,590) 5,668

Net cash used in investing activities (18,348) (5,294)

Net cash provided by (used in) financing activities 8,955 (26,183)

2 unchanged sentences

Net Cash Flows from Investing Activities

The change in cash provided by (used in) investing activities was primarily due to the net investment activity.

The increase in cash used in investing activities was primarily due to the net investment activity.

Net Cash Flows from Financing Activities

1 unchanged sentence

SPS COMMERCE, INC.

Form 10-Q for the Quarterly Period ended March 31, 2023

Form 10-Q for the Quarterly Period ended June 30, 2023

Contractual and Commercial Commitment Summary

Our contractual obligations and commercial commitments as o f March 31, 2023 are summarized below:

Our contractual obligations and commercial commitments as o f June 30, 2023 are summarized below:

Payments Due by Period

11 unchanged sentences

• response of competitors to our products and applications;

• use of capital for acquisitions.

• use of capital for acquisitions, including the €64.5 million TIE Kinetix acquisition expected to close in the quarter ending September 30, 2023.

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.

5 unchanged sentences

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, 2023 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Inflation and changing prices did not have a material effect on our business during the six months ended June 30, 2023 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis