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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended: September 30, 2019

 

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      No  

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      No  

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

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at October 18, 2019 was 34,839,275 shares.

 


 

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

29

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

 

 

 

 

 

Item 1A.

 

Risk Factors

 

30

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

30

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

30

 

 

 

 

 

Item 5.

 

Other Information

 

30

 

 

 

 

 

Item 6.

 

Exhibits

 

31

 

 

 

 

 

Signatures

 

32

 

Unless the context otherwise requires, for purposes of the Quarterly Report on Form 10-Q, the words “we,” “us,” “our,” the “Company” and “SPS” refer to SPS Commerce, Inc.


2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

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.  Factors that could cause or contribute to such differences include, but are not limited to, those described under the heading “Risk Factors” included in our Annual Report on Form 10-K/A for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (“SEC”), as may be updated in our subsequent Quarterly Reports on Form 10-Q from time to time.  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,” “assumes,” “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.  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.

 

3


 

PART I. – FINANCIAL INFORMATION

Item 1.Financial Statements

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

149,727

 

 

$

133,859

 

Short-term investments

 

 

51,446

 

 

 

44,537

 

Accounts receivable, less allowance for doubtful accounts of $1,500 and $1,392, respectively

 

 

29,383

 

 

 

27,488

 

Deferred costs

 

 

34,583

 

 

 

34,502

 

Other current assets

 

 

8,385

 

 

 

9,229

 

Total current assets

 

 

273,524

 

 

 

249,615

 

PROPERTY AND EQUIPMENT, less accumulated depreciation of $49,168 and $41,175, respectively

 

 

20,757

 

 

 

20,957

 

OPERATING LEASE RIGHT-OF-USE ASSETS

 

 

13,648

 

 

 

 

GOODWILL

 

 

76,366

 

 

 

69,658

 

INTANGIBLE ASSETS, net

 

 

23,844

 

 

 

22,741

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Deferred costs

 

 

10,998

 

 

 

10,973

 

Deferred income tax asset

 

 

4,839

 

 

 

10,456

 

Other assets

 

 

2,621

 

 

 

1,723

 

Total assets

 

$

426,597

 

 

$

386,123

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,367

 

 

$

4,440

 

Accrued compensation

 

 

17,660

 

 

 

20,415

 

Accrued expenses

 

 

4,874

 

 

 

4,558

 

Deferred revenue

 

 

30,351

 

 

 

25,328

 

Deferred rent

 

 

 

 

 

1,781

 

Operating lease liabilities

 

 

3,281

 

 

 

 

Total current liabilities

 

 

60,533

 

 

 

56,522

 

OTHER LIABILITIES

 

 

 

 

 

 

 

 

Deferred revenue

 

 

2,601

 

 

 

2,512

 

Deferred rent

 

 

 

 

 

5,371

 

Operating lease liabilities

 

 

16,224

 

 

 

 

Deferred income tax liability

 

 

1,169

 

 

 

1,376

 

Other non-current liabilities

 

 

1,002

 

 

 

1,368

 

Total liabilities

 

 

81,529

 

 

 

67,149

 

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; 55,000,000 shares authorized; 36,026,218 and 35,515,256 shares issued; and 34,901,884 and 34,691,472 outstanding, respectively

 

 

36

 

 

 

36

 

Treasury stock, at cost; 1,124,334 and 823,784 shares, respectively

 

 

(40,645

)

 

 

(25,679

)

Additional paid-in capital

 

 

349,014

 

 

 

332,574

 

Retained earnings

 

 

39,811

 

 

 

15,261

 

Accumulated other comprehensive loss

 

 

(3,148

)

 

 

(3,218

)

Total stockholders’ equity

 

 

345,068

 

 

 

318,974

 

Total liabilities and stockholders’ equity

 

$

426,597

 

 

$

386,123

 

 

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

 

See accompanying notes to these condensed consolidated financial statements.

4


 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

$

70,928

 

 

$

62,868

 

 

$

206,391

 

 

$

183,051

 

Cost of revenues

 

 

23,263

 

 

 

20,411

 

 

 

68,330

 

 

 

60,571

 

Gross profit

 

 

47,665

 

 

 

42,457

 

 

 

138,061

 

 

 

122,480

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

16,937

 

 

 

16,952

 

 

 

52,404

 

 

 

54,023

 

Research and development

 

 

7,743

 

 

 

5,146

 

 

 

20,444

 

 

 

15,571

 

General and administrative

 

 

10,725

 

 

 

11,174

 

 

 

33,674

 

 

 

31,278

 

Amortization of intangible assets

 

 

1,327

 

 

 

928

 

 

 

3,897

 

 

 

3,086

 

Total operating expenses

 

 

36,732

 

 

 

34,200

 

 

 

110,419

 

 

 

103,958

 

Income from operations

 

 

10,933

 

 

 

8,257

 

 

 

27,642

 

 

 

18,522

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

843

 

 

 

628

 

 

 

2,233

 

 

 

1,589

 

Other income (expense), net

 

 

(165

)

 

 

(219

)

 

 

28

 

 

 

(541

)

Change in earn-out liability

 

 

22

 

 

 

 

 

 

366

 

 

 

 

Total other income, net

 

 

700

 

 

 

409

 

 

 

2,627

 

 

 

1,048

 

Income before income taxes

 

 

11,633

 

 

 

8,666

 

 

 

30,269

 

 

 

19,570

 

Income tax expense

 

 

2,692

 

 

 

605

 

 

 

5,719

 

 

 

2,839

 

Net income

 

$

8,941

 

 

$

8,061

 

 

$

24,550

 

 

$

16,731

 

Other comprehensive income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(958

)

 

 

76

 

 

$

73

 

 

$

(2,155

)

Unrealized gain on investments, net of tax of $38, $41, $105, and $88, respectively

 

 

115

 

 

 

123

 

 

$

315

 

 

$

264

 

Reclassification of gain on investments into earnings, net of tax of ($48), ($11), ($109) and ($64), respectively

 

 

(145

)

 

 

(33

)

 

$

(326

)

 

$

(191

)

Total other comprehensive income (expense)

 

 

(988

)

 

 

166

 

 

 

62

 

 

 

(2,082

)

Comprehensive income

 

$

7,953

 

 

$

8,227

 

 

$

24,612

 

 

$

14,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

 

$

0.23

 

 

$

0.70

 

 

$

0.49

 

Diluted

 

$

0.25

 

 

$

0.23

 

 

$

0.68

 

 

$

0.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares used to compute net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

35,015

 

 

 

34,438

 

 

 

34,966

 

 

 

34,334

 

Diluted

 

 

35,932

 

 

 

35,482

 

 

 

35,952

 

 

 

35,114

 

 

Shares and per share data have been adjusted for all periods presented to reflect a two-for-one stock split effective August 22, 2019.

 

See accompanying notes to these condensed consolidated financial statements.

5


 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

Balances, June 30, 2018

 

 

34,319,638

 

 

$

35

 

 

 

631,082

 

 

$

(17,684

)

 

$

313,869

 

 

$

59

 

 

$

(1,590

)

 

$

294,689

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,973

 

 

 

 

 

 

 

 

 

2,973

 

Exercise of stock options and issuance of restricted stock

 

 

338,008

 

 

 

 

 

 

 

 

 

 

 

 

6,680

 

 

 

 

 

 

 

 

 

6,680

 

Repurchases of common stock

 

 

(52,502

)

 

 

 

 

 

52,502

 

 

 

(1,998

)

 

 

 

 

 

 

 

 

 

 

 

(1,998

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,061

 

 

 

 

 

 

8,061

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

76

 

Unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

123

 

 

 

123

 

Reclassification of gain on investments into earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

(33

)

Balances, September 30, 2018

 

 

34,605,144

 

 

$

35

 

 

 

683,584

 

 

$

(19,682

)

 

$

323,522

 

 

$

8,120

 

 

$

(1,424

)

 

$

310,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2019

 

 

34,936,212

 

 

$

36

 

 

 

1,007,478

 

 

$

(34,645

)

 

$

344,232

 

 

$

30,870

 

 

$

(2,160

)

 

$

338,333

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,804

 

 

 

 

 

 

 

 

 

2,804

 

Exercise of stock options and issuance of restricted stock

 

 

80,350

 

 

 

 

 

 

 

 

 

 

 

 

1,902

 

 

 

 

 

 

 

 

 

1,902

 

Employee stock purchase plan

 

 

2,178

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

 

 

 

76

 

Repurchases of common stock

 

 

(116,856

)

 

 

 

 

 

116,856

 

 

 

(6,000

)

 

 

 

 

 

 

 

 

 

 

 

(6,000

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,941

 

 

 

 

 

 

8,941

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(958

)

 

 

(958

)

Unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

115

 

 

 

115

 

Reclassification of gain on investments into earnings, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(145

)

 

 

(145

)

Balances, September 30, 2019

 

 

34,901,884

 

 

$

36

 

 

 

1,124,334

 

 

$

(40,645

)

 

$

349,014

 

 

$

39,811

 

 

$

(3,148

)

 

$

345,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in

 

 

(Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Income (Loss)

 

 

Equity

 

Balances, December 31, 2017

 

 

34,254,012

 

 

$

34

 

 

 

244,294

 

 

$

(5,815

)

 

$

301,846

 

 

$

(8,611

)

 

$

657

 

 

$

288,111

 

Stock-based compensation