spsc-20230331

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: March 31, 2023


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, MN 55402

(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. Yes x 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). Yes x 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 o No x

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at April 19, 2023 was 36,532,756 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	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	23

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

SIGNATURES		26

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 March 31, 2023

Table of Contents

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands, except shares)	March 31, 2023		December 31, 2022
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	182,304	$	162,893
Short-term investments	51,146		51,412
Accounts receivable	46,654		42,501
Allowance for credit losses	(3,217)		(3,066)
Accounts receivable, net	43,437		39,435
Deferred costs	53,844		52,755
Other assets	15,651		16,319
Total current assets	346,382		322,814
Property and equipment, net	35,078		35,458
Operating lease right-of-use assets	8,451		9,170
Goodwill	199,001		197,284
Intangible assets, net	84,536		88,352
Other assets
Deferred costs, non-current	17,965		17,424
Deferred income tax assets	3,365		227
Other assets, non-current	2,149		2,185
Total assets	$	696,927	$	672,914
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	5,339	$	11,256
Accrued compensation	26,431		30,235
Accrued expenses	8,163		7,451
Deferred revenue	62,907		57,423
Operating lease liabilities	4,121		4,277
Total current liabilities	106,961		110,642
Other liabilities
Deferred revenue, non-current	5,105		4,771
Operating lease liabilities, non-current	11,994		13,009
Deferred income tax liabilities	6,977		7,419
Total liabilities	131,037		135,841
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; 38,683,854 and 38,309,144 shares issued; and 36,532,756 and 36,158,046 shares outstanding, respectively	39		38
Treasury Stock, at cost; 2,151,098 shares	(128,892)		(128,892)
Additional paid-in capital	489,716		476,117
Retained earnings	208,510		193,221
Accumulated other comprehensive loss	(3,483)		(3,411)
Total stockholders’ equity	565,890		537,073
Total liabilities and stockholders’ equity	$	696,927	$	672,914

See accompanying notes to these condensed consolidated financial statements.


SPS COMMERCE, INC.			3			Form 10-Q for the Quarterly Period ended March 31, 2023

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SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended March 31,
(in thousands, except per share amounts) (unaudited)	2023		2022
Revenues	$	125,868	$	105,193
Cost of revenues	42,964		35,389
Gross profit	82,904		69,804
Operating expenses
Sales and marketing	29,083		24,655
Research and development	12,563		10,701
General and administrative	20,677		15,468
Amortization of intangible assets	3,851		2,470
Total operating expenses	66,174		53,294
Income from operations	16,730		16,510
Other income, net	1,276		423
Income before income taxes	18,006		16,933
Income tax expense	2,717		4,330
Net income	$	15,289	$	12,603
Other comprehensive income (expense)
Foreign currency translation adjustments	(95)		730
Unrealized gain (loss) on investments, net of tax of $133 and ($1), respectively	399		(3)
Reclassification of (gain) loss on investments into earnings, net of tax of ($125) and $4, respectively	(376)		11
Total other comprehensive income (expense)	(72)		738
Comprehensive income	$	15,217	$	13,341

Net income per share
Basic	$	0.42	$	0.35
Diluted	$	0.41	$	0.34

Weighted average common shares used to compute net income per share
Basic	36,427		36,136
Diluted	37,155		36,989

See accompanying notes to these condensed consolidated financial statements.


SPS COMMERCE, INC.			4			Form 10-Q for the Quarterly Period ended March 31, 2023

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SPS COMMERCE, INC. AND SUBSIDIARIES

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, December 31, 2021	36,009,257	$	38	1,789,353	$	(85,677)	$	433,258	$	138,087	$	(1,447)	$	484,259
Stock-based compensation	—	—		—	—		8,496		—		—		8,496
Shares issued pursuant to stock awards	231,107	—		—	—		504		—		—		504
Employee stock purchase plan activity	1,698	—		—	—		147		—		—		147
Repurchases of common stock	(121,544)	—		121,544	(15,226)		—		—		—		(15,226)
Net income	—	—		—	—		—		12,603		—		12,603
Foreign currency translation adjustments	—	—		—	—		—		—		730		730
Unrealized loss on investments, net of tax	—	—		—	—		—		—		(3)		(3)
Reclassification of loss on investments into earnings, net of tax	—	—		—	—		—		—		11		11
Balances, March 31, 2022	36,120,518	$	38	1,910,897	$	(100,903)	$	442,405	$	150,690	$	(709)	$	491,521

Balances, December 31, 2022	36,158,046	$	38	2,151,098	$	(128,892)	$	476,117	$	193,221	$	(3,411)	$	537,073
Stock-based compensation	—	—		—	—		11,175		—		—		11,175
Shares issued pursuant to stock awards	372,161	1		—	—		2,183		—		—		2,184
Employee stock purchase plan activity	2,549	—		—	—		241		—		—		241

Net income	—	—		—	—		—		15,289		—		15,289
Foreign currency translation adjustments	—	—		—	—		—		—		(95)		(95)
Unrealized gain on investments, net of tax	—	—		—	—		—		—		399		399
Reclassification of gain on investments into earnings, net of tax	—	—		—	—		—		—		(376)		(376)
Balances, March 31, 2023	36,532,756	$	39	2,151,098	$	(128,892)	$	489,716	$	208,510	$	(3,483)	$	565,890

See accompanying notes to these condensed consolidated financial statements..


SPS COMMERCE, INC.			5			Form 10-Q for the Quarterly Period ended March 31, 2023

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SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
(in thousands) (unaudited)	2023		2022
Cash flows from operating activities
Net income	$	15,289	$	12,603
Reconciliation of net income to net cash provided by operating activities
Deferred income taxes	(5,147)		(269)
Depreciation and amortization of property and equipment	4,626		3,864
Amortization of intangible assets	3,851		2,470
Provision for credit losses	1,206		1,144
Stock-based compensation	11,780		9,015
Other, net	502		(7)
Changes in assets and liabilities
Accounts receivable	(6,220)		(5,563)
Deferred costs	(1,679)		(2,797)
Other current and non-current assets	602		(6,736)
Accounts payable	(4,849)		(3,229)
Accrued compensation	(4,417)		(10,495)
Accrued expenses	721		(1,746)
Deferred revenue	5,818		6,349
Operating leases	(452)		(256)
Net cash provided by operating activities	21,631		4,347
Cash flows from investing activities
Purchases of property and equipment	(5,261)		(4,355)
Purchases of investments	(34,329)		(54,977)
Maturities of investments	35,000		65,000

Net cash provided by (used in) investing activities	(4,590)		5,668
Cash flows from financing activities
Repurchases of common stock	—		(15,226)
Net proceeds from exercise of options to purchase common stock	2,184		504
Net proceeds from employee stock purchase plan activity	241		147

Net cash provided by (used in) financing activities	2,425		(14,575)
Effect of foreign currency exchange rate changes	(55)		96
Net increase (decrease) in cash and cash equivalents	19,411		(4,464)
Cash and cash equivalents at beginning of period	162,893		207,552
Cash and cash equivalents at end of period	$	182,304	$	203,088

See accompanying notes to these condensed consolidated financial statements.


SPS COMMERCE, INC.			6			Form 10-Q for the Quarterly Period ended March 31, 2023

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SPS COMMERCE, INC. AND SUBSIDIARIES

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, 2022, 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 three months ended March 31, 2023. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, for additional information regarding our significant accounting policies.

Accounting Pronouncements Recently Adopted

Standard

Date of Issuance

Description

Date of Adoption

Effect on the Financial Statements

ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

October 2021

This amendment requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, effective for all business combinations in the year of adoption and thereafter.

January 2023

The adoption of this standard may have a material impact on the purchase accounting for future business combinations depending on the specific amount of contract assets and liabilities being acquired.


SPS COMMERCE, INC.			7			Form 10-Q for the Quarterly Period ended March 31, 2023

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NOTE B – Business Acquisitions

GCommerce

Effective July 19, 2022, we acquired all of the outstanding equity ownership interests of GCommerce, Inc. ("GCommerce"), a leading EDI provider within the automotive aftermarket industry. Pursuant to the definitive agreement, the purchase price was $45.1 million, including post-closing adjustments. The purchase accounting for the acquisition has not been finalized as of March 31, 2023 due primarily to provisional tax components and corresponding impacts to other items, including intangible assets. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition. During the quarter ended March 31, 2023, provisional amounts were adjusted by $1.6 million, primarily relating to a $1.5 million decrease in the estimated value of deferred income tax assets, with the corresponding offset to goodwill.

InterTrade

Effective October 4, 2022, we acquired all of the outstanding equity ownership interests of Canadian based InterTrade Systems Inc. ("InterTrade"), a leading EDI provider within the apparel and general merchandising markets. Pursuant to the definitive agreement, the purchase price was $49.1 million, including estimated post-closing adjustments. The purchase accounting for the acquisition has not been finalized as of March 31, 2023 due to various items including valuation modeling completion; provisional amounts are primarily related to intangible assets. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition. During the quarter ended March 31, 2023, there were no material changes to the provisional amounts.

NOTE C – Revenue

We derive our revenues from the following revenue streams:

SEC Form 10-Q filed by SPS Commerce Inc.