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SPS Commerce Reports Third Quarter 2023 Financial Results

Oct 26, 2023

Company delivers 91st consecutive quarter of topline growth

Revenue growth of 18% year-over-year; Recurring revenue growth of 20% year-over-year

MINNEAPOLIS, Oct. 26, 2023 (GLOBE NEWSWIRE) -- SPS Commerce, Inc. (Nasdaq: SPSC), a leader in retail cloud services, today announced financial results for the third quarter ended September 30, 2023.

Third Quarter 2023 Financial Highlights

  • Revenue was $135.7 million in the third quarter of 2023, compared to $114.5 million in the third quarter of 2022, reflecting 18% growth.
  • Recurring revenue grew 20% from the third quarter of 2022.
  • Net income was $16.8 million or $0.45 per diluted share, compared to net income of $15.9 million or $0.43 per diluted share in the third quarter of 2022.
  • Non-GAAP income per diluted share was $0.75, compared to non-GAAP income per diluted share of $0.63 in the third quarter of 2022.
  • Adjusted EBITDA for the third quarter of 2023 increased 17% to $40.5 million compared to the third quarter of 2022.

“SPS Commerce’s third quarter performance reflects the ongoing investments in optimization and automation across the retail industry, and the role we play in helping our customers achieve operational efficiencies while scaling their businesses,” said Archie Black, Executive Chair of the Board. “I have had the privilege to work with and lead an exceptionally talented workforce and I’m proud that together we built a company that has consistently delivered exceptional results for our customers and shareholders, and I am confident SPS is positioned for continued success with Chad Collins at the helm.”

“I am thrilled to join SPS Commerce at such an important time for the company and the industry, and I want to thank the management team and the board for their trust in me to lead SPS in its next chapter of growth,” said Chad Collins, CEO of SPS Commerce. “As I engage with customers and spend time with SPS employees across the globe, I look forward to building relationships and reinforcing the culture that has established SPS as a successful organization with a very exciting future.”

“SPS continues to grow its global network, strengthening our competitive position and expanding our leadership across various industries,” said Kim Nelson, CFO of SPS Commerce. “I would like to welcome Chad to the SPS team and look forward to working together as we execute on SPS’ strategy to be the world’s retail network, and continue to deliver sustained, profitable growth.”

Guidance

Fourth Quarter 2023 Guidance

  • Revenue is expected to be in the range of $142.2 million to $143.2 million.
  • Net income per diluted share is expected to be in the range of $0.40 to $0.42, with fully diluted weighted average shares outstanding of 37.7 million shares.
  • Non-GAAP income per diluted share is expected to be in the range of $0.67 to $0.69.
  • Adjusted EBITDA is expected to be in the range of $40.5 million to $41.3 million.
  • Non-cash, share-based compensation expense is expected to be $10.0 million, depreciation expense is expected to be $5.1 million, and amortization expense is expected to be $4.5 million.

Full Year 2023 Guidance

  • Revenue is expected to be in the range of $534.2 million to $535.2 million, representing 18% to 19% growth over 2022.
  • Net income per diluted share is expected to be in the range of $1.65 to $1.67, with fully diluted weighted average shares outstanding of 37.5 million shares.
  • Non-GAAP income per diluted share is expected to be in the range of $2.77 to $2.79.
  • Adjusted EBITDA is expected to be in the range of $156.2 to $157.0 million, representing 18% to 19% growth over 2022.
  • Non-cash, share-based compensation expense is expected to be $46.1 million, depreciation expense is expected to be $19.0 million, and amortization expense is expected to be $15.6 million.

The forward-looking measures and the underlying assumptions involve significant known and unknown risks and uncertainties, and actual results may vary materially. The Company does not present a reconciliation of the forward-looking non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin, and non-GAAP income per share, to the most directly comparable GAAP financial measures because it is impractical to forecast certain items without unreasonable efforts due to the uncertainty and inherent difficulty of predicting, within a reasonable range, the occurrence and financial impact of and the periods in which such items may be recognized.

Quarterly Conference Call

To access the call, please dial 1-833-816-1382, or outside the U.S. 1-412-317-0475 at least 15 minutes prior to the 3:30 p.m. CT start time. Please ask to join the SPS Commerce Q3 2023 conference call. A live webcast of the call will also be available at http://investors.spscommerce.com under the Events and Presentations menu. The replay will also be available on our website at http://investors.spscommerce.com.

About SPS Commerce

SPS Commerce is the world’s leading retail network, connecting trading partners around the globe to optimize supply chain operations for all retail partners. We support data-driven partnerships with innovative cloud technology, customer-obsessed service and accessible experts so our customers can focus on what they do best. To date, more than 115,000 companies in retail, distribution, grocery and e-commerce have chosen SPS as their retail network. SPS has achieved 91 consecutive quarters of revenue growth and is headquartered in Minneapolis. For additional information, contact SPS at 866-245-8100 or visit www.spscommerce.com.

SPS COMMERCE, SPS, SPS logo and INFINITE RETAIL POWER are marks of SPS Commerce, Inc. and registered in the U.S. Patent and Trademark Office, along with other SPS marks. Such marks may also be registered or otherwise protected in other countries. 

SPS-F

Use of Non-GAAP Financial Measures

To supplement our 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 consolidated financial statements and are subject to inherent limitations. Investors should review the reconciliations of non-GAAP financial measures to the comparable GAAP financial measures that are included in this press release.

Adjusted EBITDA Measures:

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. In the three months ended September 30, 2023, other adjustments included the expense impact from acquisition-related employee severance costs. In the nine months ended September 30, 2023, 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.

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.

Non-GAAP Income Per Share Measure:

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. In the three months ended September 30, 2023, other adjustments included the expense impact from acquisition-related employee severance costs. In the nine months ended September 30, 2023, other adjustments included the expense impacts from acquisition-related employee severance costs and 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.

Forward-Looking Statements

This press release may contain forward-looking statements, including information about management's view of SPS Commerce's future expectations, plans and prospects, including our views regarding future execution within our business, the opportunity we see in the retail supply chain world and our performance for the fourth quarter and full year of 2023, within the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors which may cause the results of SPS Commerce to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are included in documents SPS Commerce files with the Securities and Exchange Commission, including but not limited to, SPS Commerce's Annual Report on Form 10-K for the year ended December 31, 2022, as well as subsequent reports filed with the Securities and Exchange Commission. Other unknown or unpredictable factors also could have material adverse effects on SPS Commerce's future results. The forward-looking statements included in this press release are made only as of the date hereof. SPS Commerce cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, SPS Commerce expressly disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except shares)
       
  September 30,
2023		   December 31,
2022
ASSETS      
Current assets      
Cash and cash equivalents $                178,702     $                162,893  
Short-term investments                      60,628                          51,412  
Accounts receivable                      48,218                          42,501  
Allowance for credit losses                      (3,077 )                        (3,066 )
   Accounts receivable, net                      45,141                          39,435  
Deferred costs                      59,525                          52,755  
Other assets                      15,743                          16,319  
   Total current assets                    359,739                        322,814  
Property and equipment, net                      36,209                          35,458  
Operating lease right-of-use assets                       8,315                           9,170  
Goodwill                    252,045                        197,284  
Intangible assets, net                    103,597                          88,352  
Other assets      
Deferred costs, non-current                      19,521                          17,424  
Deferred income tax assets                       6,805                              227  
Other assets, non-current                       1,177                           2,185  
   Total assets $                787,408     $                672,914  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities      
Accounts payable $                   6,195     $                  11,256  
Accrued compensation                      41,474                          30,235  
Accrued expenses                       8,900                           7,451  
Deferred revenue                      71,853                          57,423  
Operating lease liabilities                       4,449                           4,277  
   Total current liabilities                    132,871                        110,642  
Other liabilities      
Deferred revenue, non-current                       6,849                           4,771  
Operating lease liabilities, non-current                      10,563                          13,009  
Deferred income tax liabilities                      10,281                           7,419  
   Total liabilities                    160,564                        135,841  
Commitments and contingencies      
Stockholders' equity      
Common stock                            39                                38  
Treasury Stock                  (128,892 )                    (128,892 )
Additional paid-in capital                    520,313                        476,117  
Retained earnings                    240,034                        193,221  
Accumulated other comprehensive loss                      (4,650 )                        (3,411 )
   Total stockholders’ equity                    626,844                        537,073  
      Total liabilities and stockholders’ equity $                787,408     $                672,914  

 

 
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands, except per share amounts)
 
  Three Months Ended
September 30,		   Nine Months Ended
September 30,
    2023     2022       2023     2022  
Revenues $             135,661   $             114,486     $         391,945   $        328,857  
Cost of revenues                   45,521                     38,605                  133,029               111,524  
Gross profit                   90,140                     75,881                  258,916               217,333  
Operating expenses              
Sales and marketing                   30,289                     25,334                    89,722                 74,571  
Research and development                   13,558                     11,135                    39,438                 33,268  
General and administrative                   21,906                     16,724                    64,275                 49,390  
Amortization of intangible assets                      3,788                        2,998                    11,118                   7,936  
 Total operating expenses                   69,541                     56,191                  204,553               165,165  
Income from operations                   20,599                     19,690                    54,363                 52,168  
Other income (expense), net                      1,702                         (695 )                    4,859                 (1,610 )
Income before income taxes                   22,301                     18,995                    59,222                 50,558  
Income tax expense                      5,459                        3,132                    12,409                 11,339  
Net income $               16,842   $               15,863     $           46,813   $          39,219  
               
Net income per share              
Basic $                    0.46   $                    0.44     $                1.28   $               1.09  
Diluted $                    0.45   $                    0.43     $                1.25   $               1.06  
               
Weighted average common shares used to compute net income per share              
Basic                   36,728                     36,093                    36,584                 36,104  
Diluted                   37,584                     36,915                    37,417                 36,942  

 

 
SPS COMMERCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
   
  Nine Months Ended
September 30,
    2023       2022  
Cash flows from operating activities      
Net income $              46,813     $              39,219  
Reconciliation of net income to net cash provided by operating activities      
Deferred income taxes                 (11,906 )                     (2,092 )
Depreciation and amortization of property and equipment                   13,964                       11,983  
Amortization of intangible assets                   11,118                         7,936  
Provision for credit losses                     4,004                         2,889  
Stock-based compensation                   36,097                       25,636  
Other, net                     1,711                               43  
Changes in assets and liabilities      
   Accounts receivable                   (8,800 )                     (3,999 )
   Deferred costs                   (7,543 )                     (7,174 )
   Other current and non-current assets                     2,814                         2,202  
   Accounts payable                   (5,289 )                          129  
   Accrued compensation                     8,073                       (4,388 )
   Accrued expenses                       (169 )                     (3,035 )
   Deferred revenue                   10,042                         8,261  
   Operating leases                   (1,417 )                     (1,127 )
Net cash provided by operating activities                   99,512                       76,483  
Cash flows from investing activities      
Purchases of property and equipment                 (15,467 )                   (13,894 )
Purchases of investments               (102,763 )                 (134,276 )
Maturities of investments                   95,000                     132,500  
Acquisition of business, net                 (70,218 )                   (44,923 )
Net cash used in investing activities                 (93,448 )                   (60,593 )
Cash flows from financing activities      
Repurchases of common stock                           —                     (42,700 )
Net proceeds from exercise of options to purchase common stock                     5,524                         2,457  
Net proceeds from employee stock purchase plan activity                     4,481                         3,588  
Net cash provided by (used in) financing activities                   10,005                     (36,655 )
Effect of foreign currency exchange rate changes                       (260 )                         (557 )
Net increase (decrease) in cash and cash equivalents                   15,809                     (21,322 )
Cash and cash equivalents at beginning of period                 162,893                     207,552  
Cash and cash equivalents at end of period $            178,702     $            186,230  

 

 
SPS COMMERCE, INC.
NON-GAAP RECONCILIATION
(Unaudited; in thousands, except per share amounts)
 
Adjusted EBITDA
  Three Months Ended
September 30,		   Nine Months Ended
September 30,
    2023       2022       2023       2022  
Net income $                16,842     $                15,863     $                46,813     $                39,219  
Income tax expense                     5,459                         3,132                        12,409                        11,339  
Depreciation and amortization of property and equipment                     4,675                         4,169                        13,964                        11,983  
Amortization of intangible assets                     3,788                         2,998                        11,118                         7,936  
Stock-based compensation expense                    11,436                         7,960                        36,097                        25,636  
Realized (gain) loss from foreign currency on cash and investments held                        (98 )                       1,151                           (525 )                       2,010  
Investment income                    (2,635 )                         (586 )                      (5,372 )                         (806 )
Other                     1,036                              —                         1,170                              —  
Adjusted EBITDA $                40,503     $                34,687     $              115,674     $                97,317  

 

Adjusted EBITDA Margin
  Three Months Ended
September 30,		   Nine Months Ended
September 30,
    2023       2022       2023       2022  
Revenue $              135,661     $              114,486     $            391,945     $              328,857  
               
Net income                  16,842                      15,863                      46,813                      39,219  
Margin        12 %          14 %          12 %          12 %
               
Adjusted EBITDA                  40,503                      34,687                    115,674                      97,317  
Adjusted EBITDA Margin        30 %          30 %          30 %          30 %

 

Non-GAAP Income per Share
  Three Months Ended
September 30,		   Nine Months Ended
September 30,
    2023       2022       2023       2022  
Net income $               16,842     $               15,863     $               46,813     $               39,219  
Stock-based compensation expense                   11,436                         7,960                       36,097                       25,636  
Amortization of intangible assets                     3,788                         2,998                       11,118                         7,936  
Realized (gain) loss from foreign currency on cash and investments held                        (98 )                       1,151                          (525 )                       2,010  
Other                     1,036                              —                         1,170                              —  
Income tax effects of adjustments                   (4,981 )                     (4,866 )                   (16,089 )                   (11,576 )
Non-GAAP income $               28,023     $               23,106     $               78,584     $               63,225  
               
Shares used to compute net income and non-GAAP income per share              
Basic                   36,728                       36,093                       36,584                       36,104  
Diluted                   37,584                       36,915                       37,417                       36,942  
               
Net income per share, basic $                  0.46     $                  0.44     $                  1.28     $                  1.09  
Non-GAAP adjustments to net income per share, basic                      0.30                          0.20                          0.86                          0.66  
Non-GAAP income per share, basic $                  0.76     $                  0.64     $                  2.14     $                  1.75  
               
Net income per share, diluted $                  0.45     $                  0.43     $                  1.25     $                  1.06  
Non-GAAP adjustments to net income per share, diluted                      0.30                          0.20                          0.86                          0.66  
Non-GAAP income per share, diluted $                  0.75     $                  0.63     $                  2.11     $                  1.72  
               

Contact:
Investor Relations
The Blueshirt Group
Irmina Blaszczyk & Lisa Laukkanen
SPSC@blueshirtgroup.com
415-217-4962

 


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Source: SPS Commerce, Inc.

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