Form 10-Q
Table of Contents

 

 

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: June 30, 2013

 

¨ 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)

 

 

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   ¨    Accelerated Filer   x
Non-Accelerated Filer   ¨  (Do not check if a smaller reporting company)    Smaller Reporting Company   ¨

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

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at July 24, 2013 was 15,143,247 shares.

 

 

 


Table of Contents

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

 

         Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

  Financial Statements   
  Condensed Consolidated Balance Sheets as of June 30, 2013 (unaudited)
and December 31, 2012
     3   
  Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited)      4   
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited)      5   
  Notes to Condensed Consolidated Financial Statements (unaudited)      6   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      11   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      19   

Item 4.

  Controls and Procedures      19   

PART II. OTHER INFORMATION

  

Item 1.

  Legal Proceedings      20   

Item 1A.

  Risk Factors      20   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      20   

Item 3.

  Defaults Upon Senior Securities      20   

Item 4.

  Mine Safety Disclosures      20   

Item 5.

  Other Information      20   

Item 6.

  Exhibits      20   

Signatures

     21   

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements regarding us, our business prospects and our results of operations that 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 for the year ended December 31, 2012 as filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. 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 Commission that advise interested parties of the risks and factors that may affect our business.

 

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Table of Contents

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

SPS COMMERCE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share amounts)

 

     June 30,
2013
    December 31,
2012
 
ASSETS     

CURRENT ASSETS

    

Cash and cash equivalents

   $ 75,134      $ 66,050   

Accounts receivable, less allowance for doubtful accounts of $239 and $227, respectively

     11,707        10,940   

Deferred costs, current

     8,288        7,346   

Deferred income taxes, current

     1,732        1,732   

Prepaid expenses and other current assets

     2,966        5,443   
  

 

 

   

 

 

 

Total current assets

     99,827        91,511   

PROPERTY AND EQUIPMENT, net

     9,319        7,670   

GOODWILL

     25,487        25,487   

INTANGIBLE ASSETS, net

     18,806        20,240   

OTHER ASSETS

    

Deferred costs, net of current portion

     3,525        3,202   

Deferred income taxes, net of current portion

     10,822        10,853   

Other non-current assets

     202        238   
  

 

 

   

 

 

 
   $ 167,988      $ 159,201   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

CURRENT LIABILITIES

    

Accounts payable

   $ 1,650      $ 1,857   

Accrued compensation and benefits

     6,511        6,038   

Accrued expenses and other current liabilities

     3,420        1,077   

Deferred revenue, current

     6,174        5,499   
  

 

 

   

 

 

 

Total current liabilities

     17,755        14,471   

OTHER LIABILITIES

    

Deferred revenue, less current portion

     8,686        8,312   

Deferred rent

     2,019        1,601   
  

 

 

   

 

 

 

Total liabilities

     28,460        24,384   
  

 

 

   

 

 

 

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; 15,141,076 and 14,812,759 shares issued and outstanding, respectively

     15        15   

Additional paid-in capital

     186,869        182,645   

Accumulated deficit

     (47,356     (47,843
  

 

 

   

 

 

 

Total stockholders’ equity

     139,528        134,817   
  

 

 

   

 

 

 
   $ 167,988      $ 159,201   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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SPS COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share amounts)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Revenues

   $ 25,658      $ 17,821      $ 49,410      $ 34,355   

Cost of revenues

     7,943        4,843        15,009        9,291   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     17,715        12,978        34,401        25,064   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Sales and marketing

     9,647        6,972        18,872        13,419   

Research and development

     2,657        1,830        5,160        3,562   

General and administrative

     4,211        3,165        8,258        6,353   

Amortization of intangible assets

     717        260        1,434        520   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     17,232        12,227        33,724        23,854   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     483        751        677        1,210   

Other income (expense)

        

Interest income

     22        13        45        28   

Other expense

     (48     (38     (132     (103
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (26     (25     (87     (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     457        726        590        1,135   

Income tax expense

     (169     (300     (103     (453
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 288      $ 426      $ 487      $ 682   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share

        

Basic

   $ 0.02      $ 0.03      $ 0.03      $ 0.06   

Diluted

   $ 0.02      $ 0.03      $ 0.03      $ 0.05   

Weighted average common shares used to compute net income per share

        

Basic

     15,076        12,284        14,983        12,224   

Diluted

     15,785        13,026        15,677        13,106   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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SPS COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

 

     Six Months Ended
June 30,
 
     2013     2012  

Cash flows from operating activities

    

Net income

   $ 487      $ 682   

Reconciliation of net income to net cash provided by operating activities

    

Deferred income taxes

     31        364   

Depreciation and amortization of property and equipment

     2,353        1,244   

Amortization of intangible assets

     1,434        520   

Provision for doubtful accounts

     185        164   

Stock-based compensation

     2,035        1,327   

Changes in assets and liabilities

    

Accounts receivable

     (951     (1,235

Deferred costs

     (1,265     (1,136

Prepaid expenses and other current assets

     2,512        157   

Accounts payable

     (207     533   

Accrued compensation and benefits

     473        (312

Accrued expenses and other current liabilities

     497        463   

Deferred revenue

     1,049        1,800   
  

 

 

   

 

 

 

Net cash provided by operating activities

     8,633        4,571   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of property and equipment

     (1,737     (1,890
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,737     (1,890
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net proceeds from exercise of options to purchase common stock

     1,597        811   

Excess tax benefit from exercise of options to purchase common stock

     40        24   

Net proceeds from employee stock purchase plan

     551        —     
  

 

 

   

 

 

 

Net cash provided by financing activities

     2,188        835   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     9,084        3,516   

Cash and cash equivalents at beginning of period

     66,050        31,985   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 75,134      $ 35,501   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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SPS COMMERCE, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE A – General

Business Description

We are a leading provider of on-demand supply chain management solutions, providing prewired, proven integrations and comprehensive retail performance analytics to thousands of customers worldwide. We provide our solutions through the SPS Commerce platform, a cloud-based software suite that improves the way suppliers, retailers, distributors and other customers manage and fulfill orders. We deliver our solutions to our customers over the Internet using a Software-as-a-Service model and derive the majority of our revenues from thousands of monthly recurring subscriptions from businesses that utilize our solutions.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with 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. We have included all normal recurring adjustments considered necessary to give a fair statement of our financial position, results of operations and cash flows for the interim periods shown. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full year. The December 31, 2012 balance sheet data was derived from our audited financial statements at that date. For further information, refer to the consolidated financial statements and accompanying notes for the year ended December 31, 2012 included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 6, 2013.

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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

During the six months ended June 30, 2013, there were no material changes in our significant accounting policies. See Note A to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on March 6, 2013, for additional information regarding our significant accounting policies.

Recent Accounting Pronouncements

We have evaluated all recent accounting pronouncements and believe that none of them will have a material effect on our consolidated financial statements.

 

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NOTE B – Intangible Assets, net

Intangible assets included the following (in thousands):

 

     June 30, 2013      December 31, 2012  
     Carrying
Amount
     Accumulated
Amortization
    Net      Carrying
Amount
     Accumulated
Amortization
    Net  

Subscriber relationships

   $ 23,160       $ (5,113   $ 18,047       $ 23,160       $ (3,850   $ 19,310   

Non-competition agreements

     1,710         (951     759         1,710         (780     930   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 24,870       $ (6,064   $ 18,806       $ 24,870       $ (4,630   $ 20,240   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Amortization expense for intangible assets was $717,000 and $1.4 million for the three and six months ended June 30, 2013, and $260,000 and $520,000 for the three and six months ended June 30, 2012, respectively.

At June 30, 2013, future amortization expense for intangible assets was as follows (in thousands):

 

Remainder of 2013

   $ 1,434   

2014

     2,688   

2015

     2,578   

2016

     2,577   

2017

     2,557   

Thereafter

     6,682   
  

 

 

 
   $ 18,516   
  

 

 

 

The table above does not include amounts related to non-competition agreements where the term of the agreement has not yet started. The term of such agreements, and the related amortization, begins with the termination of employment of the respective employee(s).

NOTE C – Line of Credit

We have a revolving credit agreement with JPMorgan Chase Bank, N.A. which provides for a $20 million revolving credit facility that we may draw upon from time to time, subject to certain terms and conditions, and will mature on September 30, 2016.

There were no borrowings outstanding at June 30, 2013 and we were in compliance with all covenants under the revolving credit agreement as of that date.

NOTE D – Accrued Expenses and Other Current Liabilities

In the second quarter of 2013, we entered into an agreement to purchase software licenses. At June 30, 2013, our future payments under this agreement, which are included in accrued expenses and other current liabilities in our consolidated balance sheets, were approximately $900,000 for the remainder of 2013 and approximately $1.4 million for 2014.

NOTE E – Stock-Based Compensation

Our equity compensation plans provide for the grant of incentive and nonqualified stock options, as well as other stock-based awards including restricted stock, to employees, non-employee directors and other consultants who provide services to us. Restricted stock awards result in the issuance of new shares when granted. For other stock-based awards, new shares are issued when the award is exercised or vested. In January 2013, 888,765 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan. At June 30, 2013, there were approximately 1.8 million shares available for grant under approved equity compensation plans.

 

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We recorded non-cash stock-based compensation expense of $1.1 million and $2.0 million for the three and six months ended June 30, 2013, and $715,000 and $1.3 million for the three and six months ended June 30, 2012, respectively. This expense was allocated as follows (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Cost of revenues

   $ 122       $ 116       $ 225       $ 214   

Operating expenses

           

Sales and marketing

     386         217         728         395   

Research and development

     63         29         124         51   

General and administrative

     540         353         958         667   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 1,111       $ 715       $ 2,035       $ 1,327   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2013, there was approximately $9.3 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight line basis over a weighted average period of 2.9 years.

Stock Options

Stock options generally vest over four years and have a contractual term of seven to ten years from the date of grant. Our stock option activity was as follows:

 

     Options
(#)
    Weighted Average
Exercise Price

($/share)
 

Outstanding at December 31, 2012

     1,370,141      $ 12.41   

Granted

     217,457        39.74   

Exercised

     (285,496     5.60   

Forfeited

     (10,120     25.26   
  

 

 

   

Outstanding at June 30, 2013

     1,291,982        18.41   
  

 

 

   

Of the total outstanding options at June 30, 2013, 702,687 were exercisable with a weighted average exercise price of $11.37 per share. The total outstanding options had a weighted average remaining contractual life of 6.3 years.

The weighted average fair value per share of options granted during the first six months of 2013 was $14.26 and this was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

 

Weighted-average volatility

     41.1

Expected dividend yield

     0

Expected life (in years)

     4.75   

Weighted-average risk-free interest rate

     0.84

Restricted Stock Units and Awards

Restricted stock units vest over four years and, upon vesting, the holder is entitled to receive shares of our common stock. With restricted stock awards, shares of our common stock are issued when the award is granted and the restrictions lapse over one year.

 

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Our restricted stock units activity was as follows:

 

     (#)     Weighted Average
Grant Date Fair
Value ($/share)
 

Outstanding at December 31, 2012

     68,241      $ 26.35   

Granted

     57,362        39.03   

Vested and common stock issued

     (14,472     25.44   

Forfeited

     (1,783     31.86   
  

 

 

   

Outstanding at June 30, 2013

     109,348        33.28   
  

 

 

   

The number of restricted stock units outstanding at June 30, 2013 included 3,482 units that have vested but shares of common stock have not yet been issued pursuant to the terms of the agreement.

Our restricted stock awards activity was as follows:

 

     (#)     Weighted Average
Grant Date Fair
Value ($/share)
 

Outstanding at December 31, 2012

     5,275      $ 27.55   

Restricted common stock issued

     5,688        48.66   

Restrictions lapsed

     (6,697     32.03   

Forfeited

     —          —     
  

 

 

   

Outstanding at June 30, 2013

     4,266        48.66   
  

 

 

   

Employee Stock Purchase Plan

Our employee stock purchase plan allows participating employees to purchase shares of our common stock at a discount through payroll deductions. The plan is available to all employees subject to certain eligibility requirements. Participating employees may purchase common stock, on a voluntary after tax basis, at a price that is the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period. The plan consists of two six-month offering periods, beginning on January 1 and July 1 of each calendar year. A total of 1.2 million shares of common stock are reserved for issuance under the plan.

For the offering period that began on January 1, 2013 and ended June 30, 2013, we withheld approximately $551,000 from employees participating in the plan. On June 30, 2013, 17,386 shares were purchased on behalf of the employees participating in the plan and approximately 1.2 million shares were available for future purchases.

For the three and six months ended June 30, 2013, we recorded approximately $90,000 and $183,000 of stock-based compensation expense associated with the employee stock purchase plan. The fair value was estimated based on the market price of our common stock at the beginning of the offering period, which was $37.27 per share, and using the Black-Scholes option pricing model with the following assumptions:

 

Expected volatility

     41.1

Expected dividend yield

     0

Expected life (in years)

     0.50   

Risk-free interest rate

     0.12

 

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NOTE F – Income Taxes

We recorded income tax expense of $169,000 and $103,000 for the three and six months ended June 30, 2013. We recorded income tax expense of $300,000 and $453,000 for the three and six months ended June 30, 2012. We record our interim provision for income taxes based on our estimated annual effective tax rate for the year. Differences between our effective tax rate and statutory tax rates are primarily due to the impact of meals, entertainment and employee stock purchase plan expenses, as well as the federal R&D credit. Our provisions for income taxes included current foreign and state income tax expense, as well as deferred tax expense.

The decrease in income tax expense for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, was primarily due to a discrete tax benefit of $117,000 in 2013 for the retroactive benefit of the 2012 federal R&D credit. The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013 and extended the federal R&D credit from January 1, 2012 through December 31, 2013.

We are subject to income taxes in the U.S. federal and various state and international jurisdictions. As of June 30, 2013, we are generally subject to tax examinations for all prior years due to our net operating loss carryforwards.

As of June 30, 2013, we do not have any unrecognized tax benefits. It is our practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We do not expect any material changes in our unrecognized tax positions over the next 12 months.

NOTE G – Net Income Per Share

Basic net income per share has been computed using the weighted average number of shares of common stock outstanding during each period. Diluted net income per share also includes the impact of our outstanding potential common shares, including options and restricted stock units. Potential common shares that are anti-dilutive are excluded from the calculation of diluted net income per share.

The following table presents the components of the computation of basic and diluted net income per share for the periods indicated (in thousands, except per share amounts):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2013      2012      2013      2012  

Numerator

           

Net income

   $ 288       $ 426       $ 487       $ 682   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator

           

Weighted average common shares outstanding, basic

     15,076         12,284         14,983         12,224   

Options to purchase common stock

     665         728         646         858   

Restricted stock units

     39         14         45         24   

Employee stock purchase plan

     5         —           3         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     15,785         13,026         15,677         13,106   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share

           

Basic

   $ 0.02       $ 0.03       $ 0.03       $ 0.06   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.02       $ 0.03       $ 0.03       $ 0.05   
  

 

 

    

 

 

    

 

 

    

 

 

 

For each of the three and six months ended June 30, 2013, the effect of approximately 16,000 outstanding potential common shares were excluded from the calculation of diluted net income per share because they were anti-dilutive. For each of the three and six months ended June 30, 2012, the effect of approximately 22,000 outstanding potential common shares were excluded from the calculation of diluted net income per share because they were anti-dilutive.

 

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

Overview

We are a leading provider of on-demand supply chain management solutions, providing prewired, proven integrations and comprehensive retail performance analytics to thousands of customers worldwide. We provide our solutions through the SPS Commerce platform, a cloud-based software suite that improves the way suppliers, retailers, distributors and other customers manage and fulfill orders. We deliver our solutions to our customers over the Internet using a Software-as-a-Service model and derive the majority of our revenues from thousands of monthly recurring subscriptions from businesses that utilize our solutions.

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 developing new solutions 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 and Metrics

We have several key financial terms and metrics, including annualized average recurring revenues per recurring revenue customer, which we also refer to as wallet share. During the six months ended June 30, 2013, there were no changes in the definitions of our key financial terms and metrics, which are discussed in more detail under the heading “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, 2012 as filed with the Securities and Exchange Commission on March 6, 2013.

To supplement our financial statements, we also provide investors with Adjusted EBITDA and non-GAAP income per share, both of which are non-GAAP financial measures. We believe that these non-GAAP measures provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare the company’s 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. These measures are also presented to our board of directors.

These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”). These non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in our 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies and Estimates

This discussion of our financial condition and results of operations is based upon our financial statements, which are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. 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. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, the following accounting policies involve a greater degree of judgment, complexity and effect on materiality. A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make difficult, subjective or complex judgments for 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, the allowance for doubtful accounts, income taxes, stock-based compensation and the valuation of goodwill and intangible assets are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

 

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During the six months ended June 30, 2013, there were no significant changes in our critical accounting policies or estimates.

See Note A to our consolidated financial statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on March 6, 2013, for additional information regarding our critical accounting policies, as well as a description of our other significant accounting policies.

 

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Results of Operations

The following tables present our results of operations for the periods indicated (dollars in thousands):

 

     Three Months Ended June 30,              
     2013     2012     Change  
           % of revenue           % of revenue     $     %  

Revenues

   $ 25,658        100.0   $ 17,821        100.0   $ 7,837        44.0

Cost of revenues

     7,943        31.0        4,843        27.2        3,100        64.0   
  

 

 

     

 

 

       

Gross profit

     17,715        69.0        12,978        72.8        4,737        36.5   
  

 

 

     

 

 

       

Operating expenses

            

Sales and marketing

     9,647        37.6        6,972        39.1        2,675        38.4   

Research and development

     2,657        10.4        1,830        10.3        827        45.2   

General and administrative

     4,211        16.4        3,165        17.8        1,046        33.0   

Amortization of intangible assets

     717        2.8        260        1.5        457        175.8   
  

 

 

     

 

 

       

Total operating expenses

     17,232        67.2        12,227        68.6        5,005        40.9   
  

 

 

     

 

 

       

Income from operations

     483        1.9        751        4.2        (268     (35.7

Other income (expense)

            

Interest income

     22        0.1        13        0.1        9        69.2   

Other expense

     (48     (0.2     (38     (0.2     (10     26.3   
  

 

 

     

 

 

       

Total other expense, net

     (26     (0.1     (25     (0.1     (1     4.0   
  

 

 

     

 

 

       

Income before income taxes

     457        1.8        726        4.1        (269     (37.1

Income tax expense

     (169     (0.7     (300     (1.7     131        (43.7
  

 

 

     

 

 

       

Net income

   $ 288        1.1      $ 426        2.4        (138     (32.4
  

 

 

     

 

 

       
     Six Months Ended June 30,              
     2013     2012     Change  
           % of revenue           % of revenue     $     %  

Revenues

   $ 49,410        100.0   $ 34,355        100.0   $ 15,055        43.8

Cost of revenues

     15,009        30.4        9,291        27.0        5,718        61.5   
  

 

 

     

 

 

       

Gross profit

     34,401        69.6        25,064        73.0        9,337        37.3   
  

 

 

     

 

 

       

Operating expenses

            

Sales and marketing

     18,872        38.2        13,419        39.1        5,453        40.6   

Research and development

     5,160        10.4        3,562        10.4        1,598        44.9   

General and administrative

     8,258        16.7        6,353        18.5        1,905        30.0   

Amortization of intangible assets

     1,434        2.9        520        1.5        914        175.8   
  

 

 

     

 

 

       

Total operating expenses

     33,724        68.3        23,854        69.4        9,870        41.4   
  

 

 

     

 

 

       

Income from operations

     677        1.4        1,210        3.5        (533     (44.0

Other income (expense)

            

Interest income

     45        0.1        28        0.1        17        60.7   

Other expense

     (132     (0.3     (103     (0.3     (29     28.2   
  

 

 

     

 

 

       

Total other expense, net

     (87     (0.2     (75     (0.2     (12     16.0   
  

 

 

     

 

 

       

Income before income taxes

     590        1.2        1,135        3.3        (545     (48.0

Income tax expense

     (103     (0.2     (453     (1.3     350        (77.3
  

 

 

     

 

 

       

Net income

   $ 487        1.0      $ 682        2.0        (195     (28.6
  

 

 

     

 

 

       

Due to rounding, totals may not equal the sum of the line items in the table above.

 

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Three and Six Months Ended June 30, 2013 compared to Three and Six Months Ended June 30, 2012

Revenues. Revenues for the three months ended June 30, 2013 increased $7.8 million, or 44%, to $25.7 million from $17.8 million for the same period in 2012. Our fiscal quarter ended June 30, 2013 represented our 50th consecutive quarter of increased revenues. Revenues for the six months ended June 30, 2013 increased $15.1 million, or 44%, to $49.4 million from $34.4 million for the same period in 2012.

The increase in revenues for both the three and six month periods resulted from two primary factors: the increase in recurring revenue customers and the increase in annualized average recurring revenues per recurring revenue customer, which we also refer to as wallet share.

 

   

The number of recurring revenue customers increased 11% to 18,871 at June 30, 2013 from 17,035 at June 30, 2012.

 

   

Annualized average recurring revenues per recurring revenue customer increased 33% to $4,869 for the three months ended June 30, 2013 from $3,668 for the same period in 2012. This increase in wallet share was primarily attributable to increased fees resulting from increased usage of our solutions by our recurring revenue customers and growth in larger customers, including those acquired from Edifice in 2012.

Recurring revenues from recurring revenue customers accounted for 88% and 89% of our total revenues for the three and six months ended June 30, 2013, compared to 86% for each of the same periods in 2012. We anticipate that the number of recurring revenue customers and the recurring revenues per recurring revenue customer will continue to increase as we increase the number of solutions we offer and increase the penetration of those solutions across our customer base.

Cost of Revenues. Cost of revenues for the three months ended June 30, 2013 increased $3.1 million, or 64%, to $7.9 million from $4.8 million for the same period in 2012. Cost of revenues for the six months ended June 30, 2013 increased $5.7 million, or 62%, to $15.0 million from $9.3 million for the same period in 2012. The increase in cost of revenues for both the three and six month periods in 2013 was primarily due to increased headcount in 2013 which resulted in higher personnel costs. Also contributing to the increase were higher expenses for depreciation and occupancy in 2013 as compared to 2012. As a percentage of revenues, cost of revenues was 31% and 30% for the three and six months ended June 30, 2013, compared to 27% for each of the same periods in 2012. Going forward, we anticipate that cost of revenues will increase in absolute dollars as we continue to expand our business.

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended June 30, 2013 increased $2.7 million, or 38%, to $9.6 million from $7.0 million for the same period in 2012. Sales and marketing expenses for the six months ended June 30, 2013 increased $5.5 million, or 41%, to $18.9 million from $13.4 million for the same period in 2012. The increase in sales and marketing expenses for both the three and six month periods in 2013 was primarily due to increased headcount in 2013, which resulted in higher personnel costs, as well as increased commissions earned by sales personnel from new business. We also had increased expenses for depreciation, stock-based compensation and occupancy in 2013 as compared to 2012. As a percentage of revenues, sales and marketing expenses were 38% for each of the three and six months ended June 30, 2013 compared to 39% for each of the comparable periods in 2012. As we expand our business, we will continue to add resources to our sales and marketing efforts over time, and we expect that these expenses will continue to increase in absolute dollars.

 

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Research and Development Expenses. Research and development expenses for the three months ended June 30, 2013 increased $827,000, or 45%, to $2.7 million from $1.8 million for the same period in 2012. Research and development expenses for the six months ended June 30, 2013 increased $1.6 million, or 45%, to $5.2 million from $3.6 million for the same period in 2012. The increase in research and development expenses for both the three and six month periods in 2013 was primarily due to increased headcount in 2013, which resulted in higher personnel costs, as well as increased depreciation expense in 2013 as compared to 2012. As a percentage of revenues, research and development expenses were 10% for each of the three and six months ended June 30, 2013 and 2012. As we enhance and expand our solutions and applications, we expect that research and development expenses will continue to increase in absolute dollars.

General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2013 increased $1.0 million, or 33%, to $4.2 million from $3.2 million for the same period in 2012. General and administrative expenses for the six months ended June 30, 2013 increased $1.9 million, or 30%, to $8.3 million from $6.4 million for the same period in 2012. The increase in general and administrative expenses for both the three and six month periods in 2013 was primarily due to increased headcount in 2013, which resulted in higher personnel costs, as well as increased stock-based compensation, depreciation and software maintenance expenses. As a percentage of revenues, general and administrative expenses were approximately 16% for each of the three and six months ended June 30, 2013 compared to approximately 18% for each of the same periods in 2012. Going forward, we expect that general and administrative expenses will continue to increase in absolute dollars as we expand our business.

Amortization of Intangible Assets. Amortization expense was $717,000 and $1.4 million for the three and six months ended June 30, 2013, compared to $260,000 and $520,000 for the same periods in 2012. The increase in amortization expense in 2013 from 2012 was the result of the August 2012 acquisition of Edifice.

Income Tax Expense. We recorded income tax expense of $169,000 and $103,000 for the three and six months ended June 30, 2013, compared to $300,000 and $453,000 for the three and six months ended June 30, 2012. We record our interim provision for income taxes based on our estimated annual effective tax rate for the year. Differences between our effective tax rate and statutory tax rates are primarily due to the impact of meals, entertainment and employee stock purchase plan expenses, as well as the federal R&D credit. Our provisions for income taxes included current foreign and state income tax expense, as well as deferred tax expense. The decrease in income tax expense for the six months ended June 30, 2013, compared to the six months ended June 30, 2012, was primarily due to a discrete tax benefit of $117,000 in 2013 for the retroactive benefit of the 2012 federal R&D credit. The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013 and extended the federal R&D credit from January 1, 2012 through December 31, 2013.

 

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Adjusted EBITDA. Adjusted EBITDA, which is a non-GAAP measure of financial performance, consists of net income plus depreciation and amortization, interest expense, interest income, income tax expense and non-cash, stock-based compensation expense. We use Adjusted EBITDA as a measure of operating performance because it assists us in comparing performance on a consistent basis, as it removes from our operating results the impact of our capital structure. We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company’s 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 our capital structure and the method by which assets were acquired.

The following table provides a reconciliation of net income to Adjusted EBITDA (in thousands):

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2013     2012     2013     2012  

Net income

   $ 288      $ 426      $ 487      $ 682   

Depreciation and amortization of property and equipment

     1,182        652        2,353        1,244   

Amortization of intangible assets

     717        260        1,434        520   

Interest income

     (22     (13     (45     (28

Income tax expense

     169        300        103        453   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     2,334        1,625        4,332        2,871   

Stock-based compensation expense

     1,111        715        2,035        1,327   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 3,445      $ 2,340      $ 6,367      $ 4,198   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Income Per Share. Non-GAAP income per share, which is also a non-GAAP measure of financial performance, consists of net income plus non-cash, stock-based compensation expense and amortization expense related to intangible assets divided by the weighted average number of shares of common stock outstanding during each period. We believe non-GAAP income per share is useful to an investor because it is widely used to measure a company’s operating performance.

The following table provides a reconciliation of net income to non-GAAP income per share (in thousands, except per share amounts):

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2013      2012      2013      2012  

Net income

   $ 288       $ 426       $ 487       $ 682   

Stock-based compensation expense

     1,111         715         2,035         1,327   

Amortization of intangible assets

     717         260         1,434         520   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP income

   $ 2,116       $ 1,401       $ 3,956       $ 2,529   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used to compute non-GAAP income per share

           

Basic

     15,076         12,284         14,983         12,224   

Diluted

     15,785         13,026         15,677         13,106   

Non-GAAP income per share

           

Basic

   $ 0.14       $ 0.11       $ 0.26       $ 0.21   

Diluted

   $ 0.13       $ 0.11       $ 0.25       $ 0.19   

 

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Liquidity and Capital Resources

At June 30, 2013, our principal sources of liquidity were cash and cash equivalents of $75.1 million and accounts receivable, net of allowance for doubtful accounts, of $11.7 million. Our working capital at June 30, 2013 was $82.1 million compared to $77.0 million at December 31, 2012. The increase in working capital from December 31, 2012 to June 30, 2013 resulted from the following:

 

   

$9.1 million increase in cash and cash equivalents, due primarily to the $8.6 million of cash provided by operations and the $2.2 million of cash received from the exercise of stock options and proceeds from our employee stock purchase plan, reduced by the $1.7 million of cash used for capital expenditures;

 

   

$767,000 increase in net accounts receivable, as new accounts slightly exceeded collections of outstanding balances for the six months ended June 30, 2013;

 

   

$942,000 increase in deferred costs, current, for expenses related to increased implementation resources and commission payments for new business;

 

   

$2.5 million decrease in prepaid expenses and other current assets, primarily related to the Edifice acquisition in 2012;

 

   

$207,000 decrease in accounts payable, primarily due to timing of payments;

 

   

$473,000 increase in accrued compensation and benefits, due primarily to increased headcount and payroll timing;

 

   

$2.3 million increase in accrued expenses and other current liabilities due primarily to the future payments required under a software licensing agreement; and

 

   

$675,000 increase in deferred revenue, current, due to new business for the six months ended June 30, 2013.

Net Cash Flows from Operating Activities

Net cash provided by operating activities was $8.6 million for the six months ended June 30, 2013 compared to $4.6 million for the same period in 2012. The slight decrease in net income, the changes in non-cash expenses, including increased depreciation, amortization and stock-based compensation, and the changes in our working capital accounts, including those discussed above, resulted in the overall increase in net cash provided by operations.

Net Cash Flows from Investing Activities

Net cash used in investing activities was $1.7 million and $1.9 million for the six months ended June 30, 2013 and 2012, respectively, all for capital expenditures. Our capital expenditures are for supporting our business growth and existing customer base, as well as for our internal use such as equipment for our employees.

Net Cash Flows from Financing Activities

Net cash provided by financing activities was $2.2 million and $835,000 for the six months ended June 30, 2013 and 2012, respectively, all related to the exercise of stock options and proceeds from our employee stock purchase plan.

Credit Facility

We have a revolving credit agreement with JPMorgan Chase Bank, N.A. that will mature on September 30, 2016. The revolving credit agreement provides for a $20 million revolving credit facility that we may draw upon from time to time, subject to certain terms and conditions. There were no borrowings outstanding at June 30, 2013 and we were in compliance with all covenants under the revolving credit agreement as of that date.

 

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Adequacy of Capital Resources

Our future capital requirements may vary significantly from those now planned and will depend on many factors, including the costs to develop and implement new solutions and applications, the sales and marketing resources needed to further penetrate our market and gain acceptance of new solutions and applications we develop, the expansion of our operations in the United States and internationally, the response of competitors to our solutions and applications and our use of capital for acquisitions, if any. 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 grow our business.

We believe our cash and cash equivalents and our cash flows from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

Inflation and changing prices did not have a material effect on our business during the six months ended June 30, 2013. We do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Our results of operations and cash flows are not materially affected by fluctuations in foreign currency exchange rates.

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.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity Risk

For fixed rate debt, interest rate changes affect the fair value of financial instruments but do not impact earnings or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss. The recorded carrying amounts of cash and cash equivalents approximate fair value due to their short maturities. We did not have any outstanding debt as of June 30, 2013. We therefore do not have any material risk to interest rate fluctuations unless we borrow under our credit facility in the future.

Foreign Currency Exchange Risk

Our results of operations and cash flows are not materially affected by fluctuations in foreign currency exchange rates.

Item 4. Controls and Procedures

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 Securities and Exchange Commission’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 June 30, 2013.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. – OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently subject to any material legal proceedings. From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities. Any such actions, even those that lack merit, could result in the expenditure of significant financial and managerial resources. We believe that we have obtained adequate insurance coverage or rights to indemnification in connection with potential legal proceedings that may arise.

Item 1A. Risk Factors

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, 2012 as filed with the Securities and Exchange Commission on March 6, 2013.

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

Not Applicable.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index immediately following the signatures to this report.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: August 1, 2013

      SPS COMMERCE, INC.
      /s/ KIMBERLY K. NELSON
      Kimberly K. Nelson
     

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Description

  3.1    Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-3 (File No. 333-182097) filed with the Commission on June 13, 2012).
  3.2    Bylaws (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-1/A (File No. 333-163476) filed with the Commission on March 5, 2010).
31.1    Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.2    Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
32.1    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101    Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith).

 

22

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Archie C. Black, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of SPS Commerce, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

  4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

  5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

/s/ ARCHIE C. BLACK

Archie C. Black

President and Chief Executive Officer

(principal executive officer)

August 1, 2013

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Kimberly K. Nelson, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of SPS Commerce, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

  4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

  5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

/s/ KIMBERLY K. NELSON

Kimberly K. Nelson

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

August 1, 2013

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SPS Commerce, Inc. (the “Company”) for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer and the Chief Financial Officer of the Company, hereby certify, pursuant to and for purposes of 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ ARCHIE C. BLACK

Archie C. Black

President and Chief Executive Officer

/s/ KIMBERLY K. NELSON

Kimberly K. Nelson

Executive Vice President and Chief Financial Officer

August 1, 2013