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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

 

For the Quarterly Period Ended: March 31, 2020

 

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

 

For the Transition Period from              to             

Commission file number 001-34702

SPS COMMERCE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

41-2015127

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

333 South Seventh Street, Suite 1000, Minneapolis, MN 55402

(Address of principal executive offices, including Zip Code)

(612) 435-9400

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

Common Stock, par value $0.001 per share

 

SPSC

 

The Nasdaq Stock Market LLC (Nasdaq Global Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at April 24, 2020 was 34,927,767 shares.

 


Table of Contents

 

SPS COMMERCE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

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

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

 

 

 

 

 

Item 1A.

 

Risk Factors

 

26

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

27

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

27

 

 

 

 

 

Item 5.

 

Other Information

 

27

 

 

 

 

 

Item 6.

 

Exhibits

 

28

 

 

 

 

 

Signatures

 

29

 

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


 

    SPS COMMERCE, INC.

2

Form 10-Q for the quarterly period ended March 31, 2020

 


Table of Contents

 

PART I. – FINANCIAL INFORMATION

Item 1.Financial Statements

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

December 31,

 

(In thousands, except shares)

 

2020

 

 

2019

 

ASSETS

 

(unaudited)

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

184,484

 

 

$

179,252

 

Short-term investments

 

 

30,074

 

 

 

34,284

 

Accounts receivable

 

 

33,275

 

 

 

33,001

 

Allowance for credit losses

 

 

(2,939

)

 

 

(1,469

)

Accounts receivable, net

 

 

30,336

 

 

 

31,532

 

Deferred costs

 

 

35,543

 

 

 

35,274

 

Other assets

 

 

9,417

 

 

 

11,279

 

Total current assets

 

 

289,854

 

 

 

291,621

 

PROPERTY AND EQUIPMENT, less accumulated depreciation of $53,458 and $50,574, respectively

 

 

24,035

 

 

 

23,752

 

OPERATING LEASE RIGHT-OF-USE ASSETS

 

 

15,170

 

 

 

15,744

 

GOODWILL

 

 

74,463

 

 

 

76,845

 

INTANGIBLE ASSETS, net

 

 

20,857

 

 

 

22,668

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Deferred costs, non-current

 

 

11,393

 

 

 

11,667

 

Deferred income tax assets

 

 

1,837

 

 

 

2,630

 

Other assets, non-current

 

 

2,210

 

 

 

2,513

 

Total assets

 

$

439,819

 

 

$

447,440

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,602

 

 

$

4,274

 

Accrued compensation

 

 

13,132

 

 

 

22,303

 

Accrued expenses

 

 

5,374

 

 

 

6,207

 

Deferred revenue

 

 

34,929

 

 

 

31,463

 

Operating lease liabilities

 

 

3,866

 

 

 

3,783

 

Total current liabilities

 

 

61,903

 

 

 

68,030

 

OTHER LIABILITIES

 

 

 

 

 

 

 

 

Deferred revenue, non-current

 

 

2,781

 

 

 

2,851

 

Operating lease liabilities, non-current

 

 

18,957

 

 

 

20,085

 

Deferred income tax liabilities

 

 

990

 

 

 

1,193

 

Other liabilities, non-current

 

 

 

 

 

405

 

Total liabilities

 

 

84,631

 

 

 

92,564

 

COMMITMENTS and CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 55,000,000 shares authorized; 36,474,448 and 36,104,619 shares issued; and 34,992,825 and 34,863,271 outstanding, respectively

 

 

36

 

 

 

36

 

Treasury stock, at cost; 1,481,623 and 1,241,348 shares, respectively

 

 

(58,297

)

 

 

(46,297

)

Additional paid-in capital

 

 

361,853

 

 

 

354,115

 

Retained earnings

 

 

57,419

 

 

 

48,973

 

Accumulated other comprehensive loss

 

 

(5,823

)

 

 

(1,951

)

Total stockholders’ equity

 

 

355,188

 

 

 

354,876

 

Total liabilities and stockholders’ equity

 

$

439,819

 

 

$

447,440

 

 

See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

3

Form 10-Q for the quarterly period ended March 31, 2020

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands, except per share amounts) (Unaudited)

 

2020

 

 

2019

 

Revenues

 

$

74,192

 

 

$

66,934

 

Cost of revenues

 

 

23,544

 

 

 

21,367

 

Gross profit

 

 

50,648

 

 

 

45,567

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

18,299

 

 

 

17,922

 

Research and development

 

 

7,568

 

 

 

6,192

 

General and administrative

 

 

11,909

 

 

 

12,770

 

Amortization of intangible assets

 

 

1,336

 

 

 

1,304

 

Total operating expenses

 

 

39,112

 

 

 

38,188

 

Income from operations

 

 

11,536

 

 

 

7,379

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income, net

 

 

640

 

 

 

577

 

Other expense, net

 

 

(1,241

)

 

 

(47

)

Change in earn-out liability

 

 

(72

)

 

 

(56

)

Total other income (expense), net

 

 

(673

)

 

 

474

 

Income before income taxes

 

 

10,863

 

 

 

7,853

 

Income tax expense

 

 

1,348

 

 

 

1,040

 

Net income

 

$

9,515

 

 

$

6,813

 

Other comprehensive income (expense)

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3,864

)

 

 

740

 

Unrealized gain on investments, net of tax of $24 and $30

 

 

71

 

 

 

90

 

Reclassification of gain on investments into earnings, net of tax of ($26) and ($31)

 

 

(79

)

 

 

(93

)

Total other comprehensive income (expense)

 

 

(3,872

)

 

 

737

 

Comprehensive income

 

$

5,643

 

 

$

7,550

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

 

$

0.19

 

Diluted

 

$

0.26

 

 

$

0.19

 

 

 

 

 

 

 

 

 

 

Weighted average common shares used to compute net income per share

 

 

 

 

 

 

 

 

Basic

 

 

35,072

 

 

 

34,942

 

Diluted

 

 

35,926

 

 

 

35,984

 

 

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

 

See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

4

Form 10-Q for the quarterly period ended March 31, 2020

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

(In thousands, except shares) (Unaudited)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Equity

 

Balances, December 31, 2018

 

 

34,691,472

 

 

$

36

 

 

 

823,784

 

 

$

(25,679

)

 

$

332,574

 

 

$

15,261

 

 

$

(3,218

)

 

$

318,974

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,966

 

 

 

 

 

 

 

 

 

4,966

 

Exercise of stock options and issuance of restricted stock

 

 

316,878

 

 

 

 

 

 

 

 

 

 

 

 

2,472

 

 

 

 

 

 

 

 

 

2,472

 

Repurchases of common stock

 

 

(67,464

)

 

 

 

 

 

67,464

 

 

 

(2,966

)

 

 

 

 

 

 

 

 

 

 

 

(2,966

)

Settlement and subsequent return of shares

 

 

(5,522

)

 

 

 

 

 

 

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

(300

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,813

 

 

 

 

 

 

6,813

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

740

 

 

 

740

 

Unrealized loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(93

)

 

 

(93

)

Reclassification of loss on investments into earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90

 

 

 

90

 

Adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

8

 

Balances, March 31, 2019

 

 

34,935,364

 

 

$

36

 

 

 

891,248

 

 

$

(28,645

)

 

$

339,712

 

 

$

22,074

 

 

$

(2,473

)

 

$

330,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2019

 

 

34,863,271

 

 

$

36

 

 

 

1,241,348

 

 

$

(46,297

)

 

$

354,115

 

 

$

48,973

 

 

$

(1,951

)

 

$

354,876

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,968

 

 

 

 

 

 

 

 

 

3,968

 

Exercise of stock options and issuance of restricted stock

 

 

367,814

 

 

 

 

 

 

 

 

 

 

 

 

3,683

 

 

 

 

 

 

 

 

 

3,683

 

Employee stock purchase plan

 

 

2,015

 

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

 

 

 

 

 

 

87

 

Repurchases of common stock

 

 

(240,275

)

 

 

 

 

 

240,275

 

 

 

(12,000

)

 

 

 

 

 

 

 

 

 

 

 

(12,000

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,515

 

 

 

 

 

 

9,515

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,864

)

 

 

(3,864

)

Unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

71

 

Reclassification of gain on investments into earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(79

)

 

 

(79

)

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,069

)

 

 

 

 

 

(1,069

)

Balances, March 31, 2020

 

 

34,992,825

 

 

$

36

 

 

 

1,481,623

 

 

$

(58,297

)

 

$

361,853

 

 

$

57,419

 

 

$

(5,823

)

 

$

355,188

 

 

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

 

See accompanying notes to these condensed consolidated financial statements.

 

    SPS COMMERCE, INC.

5

Form 10-Q for the quarterly period ended March 31, 2020

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands) (Unaudited)

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

9,515

 

 

$

6,813

 

Reconciliation of net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

668

 

 

 

838

 

Change in earn-out liability

 

 

72

 

 

 

56

 

Depreciation and amortization of property and equipment

 

 

3,138

 

 

 

2,637

 

Amortization of intangible assets

 

 

1,336

 

 

 

1,304

 

Provision for credit losses

 

 

1,285

 

 

 

655

 

Stock-based compensation

 

 

4,344

 

 

 

5,294

 

Other, net

 

 

(105

)

 

 

(240

)

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,053

)

 

 

(1,328

)

Deferred costs

 

 

(256

)

 

 

(414

)

Other current and non-current assets

 

 

2,041

 

 

 

(337

)

Accounts payable

 

 

655

 

 

 

353

 

Accrued compensation

 

 

(9,302

)

 

 

(8,843

)

Accrued expenses

 

 

(615

)

 

 

60

 

Deferred revenue

 

 

3,396

 

 

 

3,698

 

Operating leases

 

 

(452

)

 

 

(345

)

Net cash provided by operating activities

 

 

14,667

 

 

 

10,201

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,965

)

 

 

(2,899

)

Purchases of investments

 

 

(12,460

)

 

 

(12,447

)

Maturities of investments

 

 

15,875

 

 

 

15,225

 

Net cash used in investing activities

 

 

(550

)

 

 

(121

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(12,000

)

 

 

(2,966

)

Net proceeds from exercise of options to purchase common stock

 

 

3,683

 

 

 

2,472

 

Net proceeds from employee stock purchase plan

 

 

87

 

 

 

 

Payment for earn-out liability

 

 

(688

)

 

 

 

Net cash used in financing activities

 

 

(8,918

)

 

 

(494

)

Effect of foreign currency exchange rate changes

 

 

33

 

 

 

270

 

Net increase in cash and cash equivalents

 

 

5,232

 

 

 

9,856

 

Cash and cash equivalents at beginning of period

 

 

179,252

 

 

 

133,859

 

Cash and cash equivalents at end of period

 

$

184,484

 

 

$

143,715

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

    SPS COMMERCE, INC.

6

Form 10-Q for the quarterly period ended March 31, 2020

 


Table of Contents

 

SPS COMMERCE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE A – General

Business Description

SPS Commerce is a leading provider of cloud-based supply chain management solutions that make it easier for retailers, suppliers, grocers, distributors and logistics firms to orchestrate the management of item data, order fulfillment, inventory control and sales analytics across all channels. For many businesses, implementing and maintaining a suite of supply chain management capabilities is resource-intensive and not a core competency. The solutions offered by SPS Commerce eliminate the need for on-premise software and support staff by taking on that capability on the customer’s behalf.  These solutions also enable our customers to increase their supply cycle agility, optimize their inventory levels and sell-through, reduce operational costs and gain increased visibility into customer orders, helping ensure that suppliers, grocers, distributors, and logistics firms can satisfy retailer requirements.

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 provide a fair presentation of our financial position, results of operations, stockholders’ equity, 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. For further information, refer to the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC’).

Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) with a modified-retrospective approach and recorded a $1.1 million cumulative-effect adjustment to retained earnings. Under the standard, in determining the allowances for credit losses, we pool our outstanding accounts receivable invoices based on the contractual due date of payment at the balance sheet date. We take several factors into consideration for estimated credit losses by pool, primarily our historical credit losses. Additional adjustments are made for current and future conditions, primarily the rate of retail bankruptcies across the United States.

On July 25, 2019, the Company announced that its board of directors declared a two-for-one stock split of the Company’s common stock, effected in the form of a 100 percent stock dividend as of the record date on August 8, 2019. The stock split dividend was distributed on August 22, 2019. Earnings per share and weighted average shares outstanding are presented in this Quarterly Report on Form 10-Q after the effect of the 100 percent stock dividend. The two-for-one stock split is reflected in the share amounts in all periods presented in this Quarterly Report on Form 10-Q.

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, 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.

 

 

    SPS COMMERCE, INC.

7

Form 10-Q for the quarterly period ended March 31, 2020

 


Table of Contents

 

Recently Adopted Accounting Pronouncements

 

Standard

 

Date of Issuance

 

Description

 

Date Adopted

 

Effect on the Financial Statements

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements

 

June 2016

 

The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This is intended to provide financial statement users with more decision-useful information about the expected credit losses.

 

January 2020

 

The adoption of this standard did not have a material impact on our condensed consolidated financial statements. See above under “Basis for Presentation” for significant inputs for the allowance for credit losses.

ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

 

August 2018

 

This amendment adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, Fair Value Measurement.

 

January 2020

 

The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment

 

January 2017

 

This amendment eliminates Step 2 from the goodwill impairment test.