SPS Commerce, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2021. SPS Commerce provides cloud-based supply-chain management solutions, primarily through recurring subscriptions. The company reported its 82nd consecutive quarter of revenue growth.
Financial performance
Amounts below are in millions, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $94.5 | $75.6 | $184.6 | $149.8 |
| Gross profit / margin | $62.8 / 66.4% | $51.2 / 67.8% | $122.9 / 66.6% | $101.9 / 68.0% |
| Operating income / margin | $13.5 / 14.3% | $11.1 / 14.7% | $26.2 / 14.2% | $22.6 / 15.1% |
| Net income / margin | $10.2 / 10.8% | $11.2 / 14.8% | $20.4 / 11.0% | $20.7 / 13.8% |
| Diluted EPS | $0.28 | $0.31 | $0.55 | $0.58 |
| Adjusted EBITDA / margin | $27.3 / 29% | $20.4 / 27% | $52.8 / 29% | $40.8 / 27% |
- Revenue drivers: Q2 revenue grew 25.1%. Recurring-revenue customers rose 10% to 34,550, and annualized average recurring revenue per customer (“wallet share”) increased 12% to $10,150. Recurring revenue was 92% of total revenue, versus 94% a year earlier. Fulfillment was the largest revenue stream.
- Cash flow: Six-month operating cash flow was $54.7, compared with $36.8 a year earlier. Investing cash outflow was $17.8, including $8.7 of property and equipment purchases; financing cash outflow was $2.3. Cash and cash equivalents increased $34.7 to $184.4.
- Liquidity and debt: Cash, cash equivalents, and short-term investments totaled $233.4 at June 30; net accounts receivable was $37.9. Current assets were $323.2 and current liabilities $91.4. The company reported no debt or off-balance-sheet arrangements.
Changes versus the prior comparable period
- Revenue growth was accompanied by higher costs: cost of revenue rose 30.4% in Q2, faster than revenue, and gross margin declined 1.4 percentage points. Operating expenses increased 22.8%, including higher personnel and stock-based compensation costs and increased acquired-intangible amortization.
- Despite higher operating income, Q2 net income fell 9.0%, chiefly reflecting higher income-tax expense and a swing from other income to other expense. The company attributed the latter primarily to larger foreign-currency losses. First-half net income declined 1.6%.
- Adjusted EBITDA and its margin increased year over year, while GAAP net margin declined. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock-based compensation and amortization.
Outlook, commentary, and risks
- Management expects customer count and wallet share to increase as it expands its solutions and penetration of those solutions. It plans to pursue market penetration, distribution and international expansion, new offerings, and selective acquisitions; no specific revenue or earnings guidance was provided.
- Management said cash, investments, and operating cash flows should be sufficient for working capital and capital expenditures for at least the next 12 months. It expects expenditures to rise as the business expands.
- COVID-19 may amplify business risks. The filing also identifies exposure to foreign-exchange movements, particularly as international operations grow; the company does not currently hedge that exposure. Management said interest-rate exposure was not material.
- Data Masons, acquired in December 2020, accounted for approximately 6% of consolidated revenue and 3% of consolidated assets at June 30, excluding goodwill and net intangible assets. Purchase accounting remained provisional, and the company was integrating the acquired business’s internal controls.
- The company paid $1.9 million of contingent consideration after forgiveness of Data Masons’ PPP loan. It repurchased 63,515 shares for $6.45 million during Q2; $24.6 million remained under the repurchase authorization, which runs through November 2, 2021.
- Commitments included $24.2 million of operating lease payments and $13.7 million of purchase commitments. No material legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether recurring-customer and wallet-share growth continues, and how recurring revenue mix evolves.
- Whether gross-margin pressure, higher operating costs, tax expense, and foreign-currency losses persist.
- How much reported cash-flow growth reflects changes in deferred revenue and accrued compensation, rather than recurring earnings conversion.
- Final purchase accounting for Data Masons and progress integrating its internal controls.
- The assumptions and exclusions behind Adjusted EBITDA and other non-GAAP measures, and the use of remaining repurchase authorization.