# SPS Commerce Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [SPS Commerce Inc](/companies/spsc.md) (CIK 1092699)
- Form: 10-Q
- Filed: 2024-04-25
- Accepted by EDGAR: Apr 25, 2024, 16:13 ET
- Period: 2024-03-31
- Accession: 0001092699-24-000046
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1092699/000109269924000046/spsc-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1092699/000109269924000046/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $149.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $51.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $98.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $16.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $15.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $532.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $18.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.49 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 37,686,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $34.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $3.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $16.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $234.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $420.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $839.8m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $134.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $156.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $683.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,170 characters.

*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.

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

**SPS COMMERCE, INC.** 18 **Form 10-Q for the Quarterly Period ended March 31, 2024** 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 March 31, 2024 Compared to Three Months Ended March 31, 2023

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

*($ in thousands)*

|  | Three Months Ended March 31, 2024 $% of revenue(1) |  | 2023 $% of revenue(1) |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $149,576 | 100% | $125,868 | 100% | $23,708 | 19% |
| Cost of revenues | 51,487 | 34 | 42,964 | 34 | 8,523 | 20 |
| Gross profit | 98,089 | 66 | 82,904 | 66 | 15,185 | 18 |
| Operating expenses |  |  |  |  |  |  |
| Sales and marketing | 36,432 | 24 | 29,083 | 23 | 7,349 | 25 |
| Research and development | 16,009 | 11 | 12,563 | 10 | 3,446 | 27 |
| General and administrative | 25,907 | 17 | 20,677 | 16 | 5,230 | 25 |
| Amortization of intangible assets | 4,338 | 3 | 3,851 | 3 | 487 | 13 |
| Total operating expenses | 82,686 | 55 | 66,174 | 53 | 16,512 | 25 |
| Income from operations | 15,403 | 10 | 16,730 | 13 | (1,327) | (8) |
| Other income, net | 3,132 | 2 | 1,276 | 1 | 1,856 | 145 |
| Income before income taxes | 18,535 | 12 | 18,006 | 14 | 529 | 3 |
| Income tax expense | 532 | — | 2,717 | 2 | (2,185) | (80) |
| Net income | $18,003 | 12% | $15,289 | 12% | $2,714 | 18% |
| (1) Amounts in column may not foot due to rounding |  |  |  |  |  |  |

***Revenues -*** Revenues increased for the 93rd 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 44,800 at March 31, 2024 from approximately 42,750 at March 31, 2023, primarily due to sales and marketing efforts to acquire new customers and recent acquisitions. New customers do not have a meaningful contribution to revenue at the beginning of their tenure as our customer, and therefore a majority of the increased revenue was generated from existing customers.
- Approximately 1,000 customers were added in September 2023 due to the acquisition of the existing customer base of TIE Kinetix.
- Wallet share increased 13% to approximately $12,450 for the three months ended March 31, 2024 from approximately $11,050 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 $139.7 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Recurring revenues accounted for 93% of our total revenues for the three months ended March 31, 2024 and 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.

**SPS COMMERCE, INC.** 19 **Form 10-Q for the Quarterly Period ended March 31, 2024**

***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, and an increase of $1.6 million in stock-based compensation.

***Sales and Marketing Expenses -*** The increase in sales and marketing expense was primarily due to increased headcount, which resulted in an increase of $4.2 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 $1.5 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 $1.6 million in personnel-related costs, and an increase of $3.2 million in stock-based compensation.

***Amortization of Intangible Assets -*** No significant changes.

***Other Income, Net -*** The increase was primarily due to increased investment income from favorable interest rates.

***Income Tax Expense -*** The decrease in income tax expense was primarily driven by an increase in the excess tax benefits due to the current period equity award settlements and an increase in 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. Net income is the comparable GAAP measure of financial performance.

The following table provides a reconciliation of net income to Adjusted EBITDA:

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net income | $18,003 | $15,289 |
| Income tax expense | 532 | 2,717 |
| Depreciation and amortization of property and equipment | 4,694 | 4,626 |
| Amortization of intangible assets | 4,338 | 3,851 |
| Stock-based compensation expense | 20,018 | 11,780 |
| Realized gain from foreign currency on cash and investments held | (304) | (137) |
| Investment income | (2,879) | (1,127) |
| Adjusted EBITDA | $44,402 | $36,999 |

**SPS COMMERCE, INC.** 20 **Form 10-Q for the Quarterly Period ended March 31, 2024**

***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:

*(in thousands, except Margin and Adjusted EBITDA Margin)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Revenue | $149,576 | $125,868 |
| Net income | 18,003 | 15,289 |
| Margin | 12% | 12% |
| Adjusted EBITDA | 44,402 | 36,999 |
| Adjusted EBITDA Margin | 30% | 29% |

**SPS COMMERCE, INC.** 21 **Form 10-Q for the Quarterly Period ended March 31, 2024**

***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. 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:

*(in thousands, except per share amounts)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net income | $18,003 | $15,289 |
| Stock-based compensation expense | 20,018 | 11,780 |
| Amortization of intangible assets | 4,338 | 3,851 |
| Realized gain from foreign currency on cash and investments held | (304) | (137) |
| Income tax effects of adjustments | (9,554) | (5,909) |
| Non-GAAP income | $32,501 | $24,874 |
| Shares used to compute net income and non-GAAP income per share |  |  |
| Basic | 37,049 | 36,427 |
| Diluted | 37,686 | 37,155 |
| Net income per share, basic | $0.49 | $0.42 |
| Non-GAAP adjustments to net income per share, basic | 0.39 | 0.26 |
| Non-GAAP income per share, basic | $0.88 | $0.68 |
| Net income per share, diluted | $0.48 | $0.41 |
| Non-GAAP adjustments to net income per share, diluted | 0.38 | 0.26 |
| Non-GAAP income per share, diluted | $0.86 | $0.67 |

**SPS COMMERCE, INC.** 22 **Form 10-Q for the Quarterly Period ended March 31, 2024**

### 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 three months ended March 31, 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 March 31, 2024, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $290.8 million and net accounts receivable of $52.1 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 deposits, and commercial paper.

### Statements of Cash Flows Summary

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

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $34,064 | $21,631 |
| Net cash used in investing activities | (2,945) | (4,590) |
| Net cash provided by (used in) financing activities | (14,889) | 2,425 |

#### Operating Activities

The increase in cash provided by operating activities from the three months ended March 31, 2023 to the three months ended March 31, 2024 was primarily due to an increase in net income as adjusted for non-cash expenses, of $8.9 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 an increase of $3.6 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 three months ended March 31, 2023 to the three months ended March 31, 2024 was primarily due to a decrease in cash used to purchase property and equipment of $1.7 million year-over-year.

**SPS COMMERCE, INC.** 23 **Form 10-Q for the Quarterly Period ended March 31, 2024**

#### Financing Activities

Given our financing activities are not a direct result of servicing our customers, the increase in cash used in financing activities from the three months ended March 31, 2023 to the three months ended March 31, 2024 was primarily due to an increase in cash used for share repurchases of $16.5 million year-over-year to continue to deliver shareholder value.

### Contractual and Commercial Commitment Summary

Our contractual obligations and commercial commitments as of March 31, 2024 are summarized below:

*(in thousands)*

|  | Payments Due by Period Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Operating lease obligations, including imputed interest | $4,828 | $8,456 | $373 | $68 | $13,725 |
| Purchase commitments | 14,673 | 17,072 | — | — | 31,745 |
| Total | $19,501 | $25,528 | $373 | $68 | $45,470 |

### 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 three months ended March 31, 2024 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

**SPS COMMERCE, INC.** 24 **Form 10-Q for the Quarterly Period ended March 31, 2024**

## Market risk

As filed, 2,073 characters.

### 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 March 31, 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 March 31, 2024, we maintained 9% 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.

## Controls and procedures

As filed, 2,158 characters.

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 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. 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. We are currently in the process of incorporating internal controls specific to TIE Kinetix that we believe are appropriate and necessary to consolidate and report upon our financial results.

Excluding net intangible assets and goodwill, TIE Kinetix represented less than 5% of our consolidated assets as of March 31, 2024 and less than 5% of our consolidated revenues for the three months ended March 31, 2024.

**SPS COMMERCE, INC.** 25 **Form 10-Q for the Quarterly Period ended March 31, 2024**

## Risk factors

As filed, 206 characters.

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.

Filed Apr 25, 2024.
Source: SEC EDGAR, the filing index for accession 0001092699-24-000046. Last ingested by Listed: Nov 14, 2026, 13:43 ET. No prices; not investment advice.