What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-26 compared with 2023-07-27 · 61 added, 49 removed, 221 unchanged (33% of the section changed)

29 unchanged sentences

SPS COMMERCE, INC.

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

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

Results of Operations

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

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

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

Three Months Ended June 30,

Three Months Ended September 30,

2023 2022 Change

16 unchanged sentences

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

Revenues - Revenues increased for the 90th consecutive quarter.

Revenues - Revenues increased for the 91st consecutive quarter.

The increase in revenue 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 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.

• The number of recurring revenue customers increased 13% to 44,500 at September 30, 2023 from 39,550 at September 30, 2022 primarily due to sales and marketing efforts to acquire new customers and due to recent acquisitions.

• Wallet share increased 7% to $11,650 for the three months ended September 30, 2023 from $10,900 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 $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.

Recurring revenues increased 20% to $127.4 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Recurring revenues accounted for 94% of our total revenues for the three months ended September 30, 2023 compared to 93% for the three months ended September 30, 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.

3 unchanged sentences

SPS COMMERCE, INC.

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

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

General and Administrative Expenses - The increase in general and administrative expense was primarily related to increased stock-based compensation of $2.1 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.

Additionally, the increase was due to supporting continued business growth, including an increase in headcount which resulted in an increase in personnel-related costs of $1.8 million.

Finally, there was an increase in credit loss expense of $1.3 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 (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.

Income Tax Expense - The increase in income tax expense was primarily driven by the increase in pre-tax income, and reduction in the excess tax deductions from the current period equity award settlements as compared to prior year.

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.

Other adjustments included the expense impact from acquisition-related employee severance costs.

Net income is the comparable GAAP measure of financial performance.

1 unchanged sentence

Three Months Ended

September 30,

(in thousands) 2023 2022

6 unchanged sentences

Investment income (2,635) (586)

Other 1,036 —

Adjusted EBITDA $ 40,503 $ 34,687

3 unchanged sentences

Three Months Ended

September 30,

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

5 unchanged sentences

SPS COMMERCE, INC.

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.

Form 10-Q for the Quarterly Period ended September 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, including the expense impact from acquisition-related employee severance costs, 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.

3 unchanged sentences

Three Months Ended

September 30,

(in thousands, except per share amounts) 2023 2022

3 unchanged sentences

Realized (gain) loss from foreign currency on cash and investments held (98) 1,151

Other 1,036 —

Income tax effects of adjustments (4,981) (4,866)

10 unchanged sentences

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

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

Six Months Ended June 30,

Nine Months Ended September 30,

2023 2022 Change

18 unchanged sentences

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

• Wallet share increased 7% to $11,250 for the nine months ended September 30, 2023 from $10,550 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.

Recurring revenues increased 20% to $366.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Recurring revenues from recurring revenue customers accounted for 93% of our total revenues for the nine months ended September 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.

Cost of Revenues - The increase in cost of revenues was primarily due to increased headcount, which resulted in increases of $16.3 million in personnel-related costs and $2.0 million of software subscriptions.

Additionally, the increase was due to a $1.1 million increase in stock-based compensation.

Sales and Marketing Expenses - The increase in sales and marketing expense was primarily due to increased headcount, which resulted in increases of $10.2 million in personnel-related costs and $1.9 million in variable compensation earned by sales personnel and referral partners.

Additionally, the increase was due to a $1.5 million increase in stock-based compensation.

SPS COMMERCE, INC.

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

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

Research and Development Expenses - The increase in research and development expense was primarily due to increased headcount, which resulted in an increase of $4.1 million in personnel-related costs.

Additionally, the increase was due to a $1.1 million increase in stock-based compensation.

General and Administrative Expenses - The increase in general and administrative expense was primarily related to increased stock-based compensation of $6.7 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.

Additionally, the increase was due to supporting continued business growth, including an increase in headcount which resulted in an increases in personnel-related costs of $4.3 million and software subscriptions of $1.0 million.

Finally, there was an increase in credit loss expense of $1.1 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 (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.

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

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

Other adjustments included the expense impacts from acquisition-related employee severance costs and 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

Nine Months Ended

September 30,

(in thousands) 2023 2022

6 unchanged sentences

Investment income (5,372) (806)

Other 1,170 —

Adjusted EBITDA $ 115,674 $ 97,317

1 unchanged sentence

Margin, the comparable GAAP measure of financial performance, consists of net income divided by revenue.

SPS COMMERCE, INC.

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

The following table provides a comparison of Margin to Adjusted EBITDA Margin:

Six Months Ended

Nine Months Ended

September 30,

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

4 unchanged sentences

Adjusted EBITDA Margin 30 % 30 %

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.

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 impacts from acquisition-related employee severance costs and 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.

2 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share amounts) 2023 2022

3 unchanged sentences

Realized (gain) loss from foreign currency on cash and investments held (525) 2,010

Other 1,170 —

Income tax effects of adjustments (16,089) (11,576)

10 unchanged sentences

SPS COMMERCE, INC.

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

Form 10-Q for the Quarterly Period ended September 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 six months ended June 30, 2023, there were no changes in our critical accounting policies or estimates.

During the nine months ended September 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 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.

As of September 30, 2023 , our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $239.3 million and net accounts receivable of $45.1 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:

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2023 2022

5 unchanged sentences

Net Cash Flows from Investing Activities

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

The increase in cash used in investing activities was primarily due to acquisition activity.

Net Cash Flows from Financing Activities

1 unchanged sentence

SPS COMMERCE, INC.

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

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

Contractual and Commercial Commitment Summary

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

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

Payments Due by Period

(in thousands) Less Than

1 Year 1-3 Years 3-5 Years Total

1 Year 1-3 Years 3-5 Years More Than

5 Years Total

Operating lease obligations, including imputed interest $ 4,982 $ 8,782 $ 2,264 $ 79 $ 16,107

8 unchanged sentences

• response of competitors to our products and applications;

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

• 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.

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 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.

Inflation and changing prices did not have a material effect on our business during the nine months ended September 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