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, 2015

 

¨ 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   x    Accelerated Filer   ¨
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 22, 2015 was 16,602,877 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, 2015 (unaudited) and December 31, 2014

     3   
 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June  30, 2015 and 2014 (unaudited)

     4   
 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)

     5   
 

Notes to Condensed Consolidated Financial Statements (unaudited)

     6   

Item 2.

 

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

     13   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     20   

Item 4.

 

Controls and Procedures

     20   

PART II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     21   

Item 1A.

 

Risk Factors

     21   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     21   

Item 3.

 

Defaults Upon Senior Securities

     21   

Item 4.

 

Mine Safety Disclosures

     21   

Item 5.

 

Other Information

     21   

Item 6.

 

Exhibits

     21   

Signatures

     22   

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, 2014 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,
2015
    December 31,
2014
 
ASSETS     

CURRENT ASSETS

    

Cash and cash equivalents

   $ 121,344      $ 130,795   

Accounts receivable, less allowance for doubtful accounts of $313 and $279, respectively

     17,255        15,422   

Deferred costs

     14,003        12,055   

Deferred income taxes

     76        76   

Other current assets

     6,393        3,846   
  

 

 

   

 

 

 

Total current assets

     159,071        162,194   

PROPERTY AND EQUIPMENT, net

     12,952        11,361   

GOODWILL

     34,303        34,854   

INTANGIBLE ASSETS, net

     16,915        18,851   

MARKETABLE SECURITIES, non-current

     9,995        —     

OTHER ASSETS

    

Deferred costs, non-current

     5,445        5,267   

Deferred income taxes, non-current

     10,880        11,035   

Other non-current assets

     365        213   
  

 

 

   

 

 

 

Total assets

   $ 249,926      $ 243,775   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

CURRENT LIABILITIES

    

Accounts payable

   $ 3,706      $ 3,961   

Accrued compensation

     9,468        9,926   

Accrued expenses

     2,129        2,470   

Deferred revenue

     7,833        7,505   

Deferred rent

     704        698   
  

 

 

   

 

 

 

Total current liabilities

     23,840        24,560   

OTHER LIABILITIES

    

Deferred revenue, non-current

     10,996        10,653   

Deferred rent, non-current

     3,178        3,471   
  

 

 

   

 

 

 

Total liabilities

     38,014        38,684   
  

 

 

   

 

 

 

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; 16,563,361 and 16,348,747 shares issued and outstanding, respectively

     16        16   

Additional paid-in capital

     257,317        250,633   

Accumulated deficit

     (42,851     (44,088

Accumulated other comprehensive loss

     (2,570     (1,470
  

 

 

   

 

 

 

Total stockholders’ equity

     211,912        205,091   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 249,926      $ 243,775   
  

 

 

   

 

 

 

See accompanying notes to these condensed consolidated financial statements.

 

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SPS COMMERCE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; in thousands, except per share amounts)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2015     2014     2015     2014  

Revenues

   $ 38,846      $ 31,100      $ 75,816      $ 60,039   

Cost of revenues

     12,335        9,627        23,907        18,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     26,511        21,473        51,909        41,157   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Sales and marketing

     14,101        11,570        27,845        22,454   

Research and development

     4,495        3,365        8,564        6,339   

General and administrative

     6,055        4,842        11,873        9,353   

Amortization of intangible assets

     833        682        1,678        1,399   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     25,484        20,459        49,960        39,545   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     1,027        1,014        1,949        1,612   

Other income (expense)

        

Interest income, net

     37        50        74        99   

Other income (expense), net

     (57     35        (169     (21
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (20     85        (95     78   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     1,007        1,099        1,854        1,690   

Income tax expense

     (356     (460     (617     (678
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 651      $ 639      $ 1,237      $ 1,012   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share

        

Basic

   $ 0.04      $ 0.04      $ 0.08      $ 0.06   

Diluted

   $ 0.04      $ 0.04      $ 0.07      $ 0.06   

Weighted average common shares used to compute net income per share

        

Basic

     16,536        16,210        16,485        16,183   

Diluted

     16,998        16,768        17,043        16,799   

Other comprehensive income (loss)

        

Foreign currency translation adjustments

     (1,278     —          (2,577     —     

Unrealized gain on investments

     6        —          6        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (621   $ 639      $ (1,334   $ 1,012   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to 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,
 
     2015     2014  

Cash flows from operating activities

    

Net income

   $ 1,237      $ 1,012   

Reconciliation of net income to net cash provided by operating activities

    

Deferred income taxes

     155        576   

Depreciation and amortization of property and equipment

     3,109        2,823   

Amortization of intangible assets

     1,678        1,399   

Provision for doubtful accounts

     518        323   

Stock-based compensation

     3,146        2,698   

Changes in assets and liabilities

    

Accounts receivable

     (2,397     (2,060

Deferred costs

     (2,126     (2,260

Other current and non-current assets

     (2,710     (491

Accounts payable

     125        1,202   

Accrued compensation

     (409     (342

Accrued expenses

     (324     421   

Deferred revenue

     671        1,809   

Deferred rent

     (286     (170
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,387        6,940   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of property and equipment

     (5,079     (3,380

Purchases of marketable securities

     (9,989     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (15,068     (3,380
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net proceeds from exercise of options to purchase common stock

     2,396        922   

Excess tax benefit from exercise of options to purchase common stock

     400        60   

Net proceeds from employee stock purchase plan

     741        672   
  

 

 

   

 

 

 

Net cash provided by financing activities

     3,537        1,654   
  

 

 

   

 

 

 

Effect of foreign currency exchange rate changes

     (307     —     
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (9,451     5,214   

Cash and cash equivalents at beginning of period

     130,795        131,294   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 121,344      $ 136,508   
  

 

 

   

 

 

 

See accompanying notes to 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 cloud-based supply chain management solutions, providing network-proven integrations and comprehensive retail performance analytics to thousands of customers worldwide. We provide our solutions through the SPS Commerce platform, a cloud-based product suite that improves the way suppliers, retailers, distributors and other customers manage and fulfill orders. We 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 include the accounts of SPS Commerce, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles (“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, 2014 condensed consolidated 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, 2014 included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 20, 2015.

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, 2015, 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, 2014, as filed with the Securities and Exchange Commission on February 20, 2015, for additional information regarding our significant accounting policies.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued new accounting requirements for the recognition of revenue from contracts with customers. These new requirements are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. We are currently evaluating the impact of this guidance on our results of operations and financial position.

 

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NOTE B – Financial Instruments

We invest primarily in money market funds, highly liquid debt instruments of the U.S. government, and U.S. corporate debt securities. All highly liquid investments with original maturities of 90 days or are classified as cash equivalents. All investments with original maturities greater than 90 days and remaining maturities less than one year from the balance sheet date are classified as current marketable securities. Investments with remaining maturities of more than one year from the balance sheet date are classified as marketable securities, non-current. Current marketable securities and marketable securities, non-current are also classified as available-for-sale. We intend to hold marketable securities, non-current, until maturity; however, we may sell these securities at any time for use in current operations or for other purposes. Consequently, we may or may not hold securities with stated maturities greater than twelve months until maturity.

Our fixed income investments are carried at fair value and unrealized gains and losses on these investments, net of taxes, are included in accumulated other comprehensive loss in the condensed consolidated balance sheets. Realized gains or losses are included in other income (expense) in the condensed consolidated statements of comprehensive income (loss). When a determination has been made that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is realized and is included in other income (expense), net in the condensed consolidated statements of comprehensive income (loss).

Cash equivalents and marketable securities, non-current, consisted of the following (in thousands):

 

     June 30, 2015  
     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair Value  

Cash equivalents:

           

Money market funds

   $ 105,628       $ —         $ —         $ 105,628   

Marketable securities, non-current:

           

Corporate bonds

     2,500         —           (2      2,498   

U.S. treasury securities

     7,489         8        —           7,497   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 115,617       $ 8      $ (2    $ 115,623   
  

 

 

    

 

 

    

 

 

    

 

 

 

Due within one year

            $ 105,628   

Due within two years

              9,995   
           

 

 

 

Total

            $ 115,623   
           

 

 

 

We do not believe any of the unrealized losses represent an other-than-temporary impairment based on our valuation of available evidence as of June 30, 2015. We expect to receive the full principal and interest on all of these cash equivalents and marketable securities.

Fair Value Measurements

We measure certain financial assets at fair value on a recurring basis based on a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:

 

    Level 1 – quoted prices in active markets for identical assets or liabilities

 

    Level 2 – observable inputs other than Level 1 prices, such as (a) quoted prices for similar assets or liabilities, (b) quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or (c) model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

    Level 3 – unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

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Level 1 Measurements

Our cash equivalents held in money market funds are measured at fair value using level 1 inputs.

Level 2 Measurements

Our available-for-sale U.S. treasury securities and corporate debt securities are measured at fair value using level 2 inputs. We obtain the fair values of our level 2 available-for-sale securities from a professional pricing service.

The following table presents information about our financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

 

     Level 1      Level 2      Level 3      Total  

Assets at June 30, 2015:

           

Cash and cash equivalents:

           

Cash

   $ 15,716       $ —         $ —         $ 15,716   

Money market funds

     105,628         —           —           105,628   

Marketable securities:

              —     

Corporate bonds

     —           2,498        —           2,498   

U.S. treasury securities

     —           7,497        —           7,497   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 121,344       $ 9,995      $ —         $ 131,339   
  

 

 

    

 

 

    

 

 

    

 

 

 

Assets at December 31, 2014:

           

Cash and cash equivalents:

           

Cash

   $ 39,049       $ —         $ —         $ 39,049   

Money market funds

     91,746         —           —           91,746   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 130,795       $ —         $ —         $ 130,795   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE C – Goodwill and Intangible Assets, net

The change in our goodwill for the six months ended June 30, 2015 was due to the effect of foreign currency translation.

Intangible assets included the following (in thousands):

 

     June 30, 2015      December 31, 2014  
     Carrying
Amount
     Accumulated
Amortization
    Net      Carrying
Amount
     Accumulated
Amortization
    Net  

Subscriber relationships

   $ 26,524       $ (10,445 )   $ 16,079       $ 26,724      $ (8,992   $ 17,732   

Non-competition agreements

     1,842         (1,621 )     221         1,849        (1,581     268   

Technology and other

     871         (256 )     615         922        (71     851   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 29,237       $ (12,322 )   $ 16,915       $ 29,495      $ (10,644   $ 18,851   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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At June 30, 2015, future amortization expense for intangible assets was as follows (in thousands):

 

Remainder of 2015

   $ 1,661   

2016

     3,321   

2017

     3,052   

2018

     2,460   

2019

     2,168   

Thereafter

     4,253   
  

 

 

 
   $ 16,915   
  

 

 

 

NOTE D – 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, 2015 and we were in compliance with all covenants under the revolving credit agreement as of that date.

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 and restricted stock units, 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, vested or released according to the terms of the agreement. In January 2015, 980,924 additional shares were reserved for future issuance under our 2010 Equity Incentive Plan. At June 30, 2015, there were approximately 3.3 million shares available for grant under approved equity compensation plans.

We recorded stock-based compensation expense of $1.6 million and $3.1 million for the three and six months ended June 30, 2015 and $1.4 million and $2.7 million for the three and six months ended June 30, 2014, respectively. This expense was allocated as follows (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Cost of revenues

   $ 288       $ 152       $ 460       $ 305   

Operating expenses

           

Sales and marketing

     482         472         1,024         954   

Research and development

     173         95         308         188   

General and administrative

     704         640         1,354         1,251   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 1,647       $ 1,359       $ 3,146       $ 2,698   
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2015, there was approximately $14.4 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.

 

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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, 2014

     1,085,463       $ 26.53   

Granted

     177,864         67.37   

Exercised

     (157,569      15.20   

Forfeited

     (12,683      41.56   
  

 

 

    

Outstanding at June 30, 2015

     1,093,075         34.64   
  

 

 

    

Of the total outstanding options at June 30, 2015, 719,418 were exercisable with a weighted average exercise price of $22.88 per share. The total outstanding options had a weighted average remaining contractual life of 5.1 years.

The weighted average fair value per share of options granted during the first six months of 2015 was $23.06 and this was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

Volatility

     39.0

Dividend yield

     0

Life (in years)

     4.5   

Risk-free interest rate

     1.36%-1.40

As discussed in Note J to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014, beginning in 2015, the volatility assumption used for the Black-Scholes option pricing model is now based solely on the historical volatility of our common stock. Previously, we estimated volatility based partially on the historical volatilities of the publicly traded shares of a selected peer group and partially on the historical volatility of our common stock.

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.

Our restricted stock units activity was as follows:

 

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

Outstanding at December 31, 2014

     115,133       $ 45.25   

Granted

     66,454         67.34   

Vested and common stock issued

     (37,537      40.86   

Forfeited

     (3,422      49.08   
  

 

 

    

Outstanding at June 30, 2015

     140,628         56.77   
  

 

 

    

 

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The number of restricted stock units outstanding at June 30, 2015 included 12,487 units that have vested but for which shares of common stock have not yet been issued pursuant to the terms of the agreement.

Our restricted stock awards activity was as follows:

 

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

Outstanding at December 31, 2014

     1,338       $ 51.74   

Restricted common stock issued

     4,110         67.37   

Restrictions lapsed

     (2,364      58.52   

Forfeited

     —           —     
  

 

 

    

Outstanding at June 30, 2015

     3,084         67.37   
  

 

 

    

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, 2015 and ended June 30, 2015, we withheld approximately $748,000 from employees participating in the plan. On June 30, 2015, approximately $741,000 of these funds was used to purchase 15,398 shares on behalf of the employees participating in the plan. The remaining funds are expected to be refunded to employees pursuant to the requirements of the plan.

For the three and six months ended June 30, 2015, we recorded approximately $113,000 and $209,000, respectively, 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 each offering period and using the Black-Scholes option pricing model with the following weighted-average assumptions:

 

Volatility

     32.0

Dividend yield

     0

Life (in years)

     0.50   

Risk-free interest rate

     0.12

NOTE F – Income Taxes

We record our interim provision for income taxes by applying our estimated annual effective tax rate to our year-to-date pretax income and adjust the provision for discrete tax items recorded in the period. Differences between our effective tax rate and statutory tax rates are primarily due to the impact of meals and entertainment expense and employee stock purchase plan expense.

We recorded income tax expense of $356,000 and $617,000 for the three and six months ended June 30, 2015. We recorded income tax expense of $460,000 and $678,000 for the three and six months ended June 30, 2014. Our provisions for income taxes included current foreign and state income tax expense, as well as deferred tax expense.

We are subject to U.S federal income tax as well as income tax in various state and international jurisdictions. We are generally subject to tax examinations for all prior years due to our net operating loss carryforwards. As of June 30, 2015, we were not under any income tax audits by tax authorities.

 

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As of June 30, 2015 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
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Numerator

           

Net income

   $ 651       $ 639       $ 1,237       $ 1,012   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator

           

Weighted average common shares outstanding, basic

     16,536         16,210         16,485         16,183   

Options to purchase common stock

     436         528         531         572   

Restricted stock units

     24         30         24         43   

Employee stock purchase plan

     2         —           3         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     16,998         16,768         17,043         16,799   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share

           

Basic

   $ 0.04       $ 0.04       $ 0.08       $ 0.06   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.04       $ 0.04       $ 0.07       $ 0.06   
  

 

 

    

 

 

    

 

 

    

 

 

 

The effect of approximately 39,000 and 126,000 outstanding potential common shares was excluded from the calculation of diluted net income per share for the three and six months ended June 30, 2015 and 2014, respectively, as 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 cloud-based supply chain management solutions, providing network-proven integrations and comprehensive retail performance analytics to thousands of customers worldwide. We provide our solutions through the SPS Commerce platform, a cloud-based product suite that improves the way suppliers, retailers, distributors and other customers manage and fulfill orders. We 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, from time to time, 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.

For the three months ended June 30, 2015, our revenues were $38.8 million, an increase of 25% from the comparable period in 2014, and represented our 58th consecutive quarter of increased revenues. Total operating expenses increased 25% for the same period in 2015 from 2014. Similar results were experienced for the six months ended June 30, 2015 with increased revenues of 26% and increased operating expenses of 26% compared to the same period in 2014.

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, 2015, 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, 2014 as filed with the Securities and Exchange Commission on February 20, 2015.

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 U.S. generally accepted accounting principles (“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.

 

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Critical Accounting Policies and Estimates

This discussion of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in accordance with GAAP. 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. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Our actual results may differ from these estimates under different assumptions or conditions.

A critical accounting policy 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 purchased intangible assets are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

During the six months ended June 30, 2015, there were no changes in our significant 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, 2014, as filed with the Securities and Exchange Commission on February 20, 2015, for additional information regarding our accounting policies.

 

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Results of Operations

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

 

     Three Months Ended June 30,              
     2015     2014     Change  
           % of revenue           % of revenue     $     %  

Revenues

   $ 38,846        100.0   $ 31,100        100.0   $ 7,746        24.9

Cost of revenues

     12,335        31.8       9,627        31.0       2,708        28.1  
  

 

 

     

 

 

       

Gross profit

     26,511        68.2       21,473        69.0       5,038        23.5  
  

 

 

     

 

 

       

Operating expenses

            

Sales and marketing

     14,101        36.3       11,570        37.2       2,531        21.9  

Research and development

     4,495        11.6       3,365        10.8       1,130        33.6  

General and administrative

     6,055        15.6       4,842        15.6       1,213        25.1  

Amortization of intangible assets

     833        2.1       682        2.2       151        22.1  
  

 

 

     

 

 

       

Total operating expenses

     25,484        65.6       20,459        65.8       5,025        24.6  
  

 

 

     

 

 

       

Income from operations

     1,027        2.6       1,014        3.3       13        1.3  

Other income (expense)

            

Interest income, net

     37        0.1       50        0.2       (13     (26.0 )

Other income (expense), net

     (57     (0.1 )     35        0.1       92        (262.9 )
  

 

 

     

 

 

       

Total other income (expense), net

     (20     (0.1 )     85        0.3       105        (123.5 )
  

 

 

     

 

 

       

Income before income taxes

     1,007        2.6       1,099        3.5       (92     (8.4 )

Income tax expense

     (356     (0.9 )     (460     (1.5 )     (104     (22.6 )
  

 

 

     

 

 

       

Net income

   $ 651        1.7     $ 639        2.1       12        1.9  
  

 

 

     

 

 

       

 

     Six Months Ended June 30,              
     2015     2014     Change  
           % of revenue           % of revenue     $     %  

Revenues

   $ 75,816        100.0   $ 60,039        100.0   $ 15,777        26.3

Cost of revenues

     23,907        31.5       18,882        31.4       5,025        26.6  
  

 

 

     

 

 

       

Gross profit

     51,909        68.5       41,157        68.6       10,752        26.1  
  

 

 

     

 

 

       

Operating expenses

            

Sales and marketing

     27,845        36.7       22,454        37.4       5,391        24.0  

Research and development

     8,564        11.3       6,339        10.6       2,225        35.1  

General and administrative

     11,873        15.7       9,353        15.6       2,520        26.9  

Amortization of intangible assets

     1,678        2.2       1,399        2.3       279        19.9  
  

 

 

     

 

 

       

Total operating expenses

     49,960        65.9       39,545        65.9       10,415        26.3  
  

 

 

     

 

 

       

Income from operations

     1,949        2.6       1,612        2.7       337        20.9  

Other income (expense)

            

Interest income, net

     74        0.1       99        0.2       (25     (25.3 )

Other expense

     (169     (0.2 )     (21     —          (148     704.8  
  

 

 

     

 

 

       

Total other income (expense), net

     (95     (0.1 )     78        0.1       (173     (221.8 )
  

 

 

     

 

 

       

Income before income taxes

     1,854        2.4       1,690        2.8       164        9.7  

Income tax expense

     (617     (0.8 )     (678     (1.1 )     61        (9.0 )
  

 

 

     

 

 

       

Net income

   $ 1,237        1.6     $ 1,012        1.7       225        22.2  
  

 

 

     

 

 

       

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

 

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Table of Contents

Three and Six Months Ended June 30, 2015 compared to Three and Six Months Ended June 30, 2014

Revenues. Revenues for the three months ended June 30, 2015 increased $7.7 million, or 25%, to $38.8 million from $31.1 million for the same period in 2014. Revenues for the six months ended June 30, 2015 increased $15.8 million, or 26%, to $75.8 million from $60.0 million for the same period in 2014. The increase in revenues for each period 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 10% to 22,746 at June 30, 2015 from 20,745 at June 30, 2014.

 

    Annualized average recurring revenues per recurring revenue customer, or wallet share, increased 14% to $6,225 for the three months ended June 30, 2015 from $5,467 for the same period in 2014. 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.

Recurring revenues from recurring revenue customers accounted for 91% and 90% of our total revenues, respectively, for each of the three and six months ended June 30, 2015, compared to 90% for each of the same periods in 2014. We anticipate that the number of recurring revenue customers and wallet share 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, 2015 increased $2.7 million, or 28%, to $12.3 million from $9.6 million for the same period in 2014. Cost of revenues for the six months ended June 30, 2015 increased $5.0 million, or 27%, to $23.9 million from $18.9 million for the same period in 2014. The increase in cost of revenues for the each of the three and six month periods in 2015 was primarily due to increased headcount in 2015, which resulted in higher personnel-related costs of approximately $2.4 million and $4.5 million, respectively, compared to the same periods in 2014. As a percentage of revenues, cost of revenues was 32% for the three and six months ended June 30, 2015, and 31% for the three and six months ended June 30, 2014. 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, 2015 increased $2.5 million, or 22%, to $14.1 million from $11.6 million for the same period in 2014. Sales and marketing expenses for the six months ended June 30, 2015 increased $5.4 million, or 24%, to $27.8 million from $22.5 million for the same period in 2014. The increase in sales and marketing expenses for the each of the three and six month periods in 2015 was due to increased headcount in 2015, which resulted in higher personnel-related costs of approximately $1.5 million and $3.3 million, respectively, as well as increased variable compensation of approximately $400,000 and $1.1 million, respectively, earned by sales personnel and referral partners from new business compared to the same periods in 2014. As a percentage of revenues, sales and marketing expenses were 36% and 37% for the three and six months ended June 30, 2015, respectively, compared to 37% for the same periods in 2014. 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.

Research and Development Expenses. Research and development expenses for the three months ended June 30, 2015 increased $1.1 million, or 34%, to $4.5 million from $3.4 million for the same period in 2014. Research and development expenses for the six months ended June 30, 2015 increased $2.2 million, or 35%, to $8.6 million from $6.3 million for the same period in 2014. The increase in research and development expenses for each of the three and six month periods in 2015 was primarily due to increased headcount in 2015, which resulted in higher personnel costs of approximately $890,000 and $1.7 million, respectively, compared to the same periods in 2014. We also had increased occupancy expenses of approximately $80,000 and $190,000, respectively, in 2015 as compared to 2014. As a percentage of revenues, research and development expenses were 12% and 11% for the three and six months ended June 30, 2015, respectively, compared to 11% for each of the same periods in 2014. As we enhance and expand our solutions and applications, we expect that research and development expenses will continue to increase in absolute dollars.

 

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Table of Contents

General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2015 increased $1.2 million, or 25%, to $6.1 million from $4.8 million for the same period in 2014. General and administrative expenses for the six months ended June 30, 2015 increased $2.5 million, or 27%, to $11.9 million from $9.4 million for the same period in 2014. The increase in general and administrative expenses for the three and six month periods in 2015 was due to increased headcount in 2015, which resulted in higher personnel-related costs of approximately $800,000 and $1.6 million, respectively, compared to the same periods in 2014. We also had increased occupancy expenses of approximately $130,000 and $290,000, respectively, and increased computer expenses of approximately $120,000 and $290,000, respectively, in 2015 as compared to 2014. In addition, for both the three and six month periods in 2015, bad debt expense increased approximately $200,000, which was offset by a decrease in legal expenses of approximately $200,000. As a percentage of revenues, general and administrative expenses were 16% for each of the three and six months ended June 30, 2015 and 2014, respectively. Going forward, we expect that general and administrative expenses will continue to increase in absolute dollars as we expand our business.

Income Tax Expense. We recorded income tax expense of $356,000 and $617,000 for the three and six months ended June 30, 2015, respectively. We recorded income tax expense of $460,000 and $678,000 for the three and six months ended June 30, 2014, respectively. 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 three and six month periods in 2015 was primarily due to increased discrete tax benefits recorded for disqualifying dispositions of incentive stock options in 2015 as compared to 2014, and discrete tax benefits recorded to our estimated state deferred tax assets for enacted state law changes in 2015. For the full year 2015, we expect that our annual effective income tax rate will be approximately 40%.

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, stock-based compensation expense and other adjustments as necessary for a fair presentation. The following table provides a reconciliation of net income to Adjusted EBITDA (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Net income

   $ 651       $ 639      $ 1,237       $ 1,012   

Depreciation and amortization of property and equipment

     1,568         1,519        3,109         2,823   

Amortization of intangible assets

     833         682        1,678         1,399   

Interest income, net

     (37      (50 )      (74      (99

Income tax expense

     356         460        617         678   

Other

     —           (69 )      —           (69
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     3,371         3,181        6,567         5,744   

Stock-based compensation expense

     1,647         1,359        3,146         2,698   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 5,018       $ 4,540      $ 9,713       $ 8,442   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Net income

   $ 651       $ 639      $ 1,237       $ 1,012   

Stock-based compensation expense

     1,647         1,359        3,146         2,698   

Amortization of intangible assets

     833         682        1,678         1,399   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP income

   $ 3,131       $ 2,680      $ 6,061       $ 5,109   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used to compute non-GAAP income per share

           

Basic

     16,536         16,210        16,485         16,183   

Diluted

     16,998         16,768        17,043         16,799   

Non-GAAP income per share

           

Basic

   $ 0.19       $ 0.17      $ 0.37       $ 0.32   

Diluted

   $ 0.18       $ 0.16      $ 0.36       $ 0.30   

Liquidity and Capital Resources

At June 30, 2015, our principal sources of liquidity were cash and cash equivalents of $121.3 million and accounts receivable, net of allowance for doubtful accounts, of $17.3 million. Our working capital at June 30, 2015 was $135.2 million compared to $137.6 million at December 31, 2014. The decrease in working capital from December 31, 2014 to June 30, 2015 resulted from the following:

 

    $9.5 million decrease in cash and cash equivalents, due primarily to $2.4 million of cash provided by operations and $3.5 million of cash received from the exercise of stock options and proceeds from our employee stock purchase plan, reduced by $5.1 million of cash used for capital expenditures and $10.0 million used to purchase marketable securities;

 

    $1.8 million increase in net accounts receivable, as new accounts exceeded collections of outstanding balances for the six months ended June 30, 2015 due to growth in our business;

 

    $1.9 million increase in deferred costs for expenses related to increased implementation resources and commission payments for new business;

 

    $2.5 million increase in other current assets, primarily due to a prepayment for certain discounted cloud-based services;

 

    $255,000 decrease in accounts payable, primarily due to timing of payments and receipt of invoices;

 

    $458,000 decrease in accrued compensation due primarily to increased headcount and payroll timing, offset by payments made in 2015 for bonuses accrued as of December 31, 2014;

 

    $341,000 decrease in accrued expenses due primarily to timing of receiving invoices; and

 

    $328,000 increase in deferred revenue due to new business in 2015.

Net Cash Flows from Operating Activities

Net cash provided by operating activities was $2.4 million and $6.9 million for the six months ended June 30, 2015 and 2014, respectively. The slight increase 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, all resulted in the decrease in net cash provided by operations.

 

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Net Cash Flows from Investing Activities

Net cash used in investing activities was $15.1 million and $3.4 million for the six months ended June 30, 2015 and 2014, respectively. In 2015, we purchased marketable securities of $10.0 million. In 2015 and 2014, we had capital expenditures of $5.1 million and $3.4 million, respectively. 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 $3.5 million and $1.7 million for the six months ended June 30, 2015 and 2014, respectively, all related to the exercise of stock options and proceeds from our employee stock purchase plan.

Effect of Foreign Currency Exchange Rate Changes

Our results of operations and cash flows were not materially affected by fluctuations in foreign currency exchange rates. We maintain less than 10% of our total cash and cash equivalents outside of the United States in foreign currencies, primarily in Australian dollars. We believe that a significant change in foreign currency exchange rates or an inability to access these funds would not affect our ability to meet our operational needs.

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, 2015 and we were in compliance with all covenants under the revolving credit agreement as of that date.

Adequacy of Capital Resources

Our future capital requirements may vary significantly from those now planned and will depend on many factors, including:

 

    costs to develop and implement new solutions and applications, if any;

 

    sales and marketing resources needed to further penetrate our market and gain acceptance of new solutions and applications that we may develop;

 

    expansion of our operations in the United States and internationally;

 

    response of competitors to our solutions and applications; and,

 

    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 expand 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, 2015 and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

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

The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss. We are exposed to market risk related to changes in interest rates. However, based on the nature and current level of our investments (primarily cash and cash equivalents, which approximate fair value due to their short maturities, and marketable securities), we believe there is no material risk exposure. We did not have any outstanding debt as of June 30, 2015. 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

We have revenue, expenses, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Australian dollar. As we expand internationally, our results of operations and cash flows may be impacted by changes in foreign currency exchange rates, and would be adversely impacted when the U.S. dollar depreciates relative to other foreign currencies. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk, although we may do so in the future.

 

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, 2015.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2015 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, 2014 as filed with the Securities and Exchange Commission on February 20, 2015.

 

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: July 30, 2015     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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Table of Contents

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).

 

** Indicates management contract or compensatory plan or arrangement.

 

23

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)

July 30, 2015
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)

July 30, 2015
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, 2015, 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
(principal executive officer)

/s/ KIMBERLY K. NELSON

Kimberly K. Nelson

Executive Vice President and Chief Financial Officer

(principal financial and accounting officer)

July 30, 2015