SPS Commerce, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023 unless noted. SPS Commerce provides cloud-based supply-chain management services. Figures below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $149.6 million | $125.9 million | +19% |
| Recurring revenue | $139.7 million | $117.3 million | +19%; 93% of revenue |
| Gross profit / margin | $98.1 million / 66% | $82.9 million / 66% | Profit +18%; margin broadly flat |
| Operating income / margin | $15.4 million / 10% | $16.7 million / 13% | Income −8%; margin declined |
| Net income | $18.0 million | $15.3 million | +18% |
| Diluted GAAP EPS | $0.48 | $0.41 | +17% |
| Adjusted EBITDA / margin | $44.4 million / 30% | $37.0 million / 29% | EBITDA +20% |
| Operating cash flow | $34.1 million | $21.6 million | Increased $12.4 million |
Gross margin was approximately stable, while operating expenses grew 25%, faster than revenue. The company attributed expense increases primarily to higher headcount and stock-based compensation. Stock-based compensation was $20.0 million versus $11.8 million. Other income rose to $3.1 million, mainly from higher investment income; income tax expense fell to $0.5 million from $2.7 million, chiefly due to excess tax benefits from equity award settlements and increased deductible compensation. Non-GAAP diluted EPS was $0.86 versus $0.67; this measure excludes specified expenses and includes related tax effects.
Balance sheet, liquidity and cash flow
- At March 31, 2024, cash and cash equivalents were $234.6 million and short-term investments were $56.2 million, totaling $290.8 million; net accounts receivable was $52.1 million.
- Total liabilities were $156.9 million, including $12.9 million of operating lease liabilities. The company reported no debt or off-balance-sheet arrangements.
- Operating cash flow was $34.1 million. Investing used $2.9 million, including $3.5 million for property and equipment; financing used $14.9 million, including $16.5 million of cash paid for share repurchases. Cash increased $15.6 million during the quarter.
- Contractual commitments totaled $45.5 million: $13.7 million in operating lease payments and $31.7 million in purchase commitments. Management said available cash, investments and operating cash flow should be sufficient for working capital and capital expenditure needs for at least the next 12 months.
Business developments and changes versus prior period
- Recurring-revenue customers increased 5% to approximately 44,800; average recurring revenue per customer (“wallet share”) increased 13% to approximately $12,450. Management said most incremental revenue came from existing customers. The TIE Kinetix acquisition contributed approximately 1,000 customers beginning in September 2023.
- Revenue increased for the 93rd consecutive quarter. Domestic revenue represented 83% of total revenue, compared with 84% a year earlier.
- Share repurchases totaled $20.0 million for 109,480 shares, at an average total cost of $182.68 per share. $27.0 million remained available under the program, which expires July 26, 2024.
- Foreign currency translation and investment-related items resulted in a $3.5 million other comprehensive loss, primarily reflecting currency translation adjustments.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance was provided in the supplied filing text. Management expects recurring-customer counts and wallet share to continue increasing, and plans to pursue market penetration, international expansion, new products and selective acquisitions.
- The company completed its TIE Kinetix acquisition in September 2023; purchase accounting remained provisional at quarter-end, principally for tax components. On April 10, 2024, it agreed to acquire Vision33’s SAP Business One integration technology for CAD $5.8 million (approximately US$4.3 million at the agreement-date exchange rate); financial-statement impact was still being assessed.
- Management cautioned that actual results may differ from forward-looking statements and referred investors to risk factors in the 2023 Form 10-K. It reported no material changes to those risk factors, no known legal proceedings expected to have a material adverse effect, and no material inflation impact during the quarter.
- Foreign-exchange movements may affect reported results and other comprehensive income; 9% of cash and investments were held in foreign currencies. The company did not hedge with forward contracts or currency borrowings. Management assessed interest-rate and foreign-exchange exposures as not material to operational needs.
- Disclosure controls were deemed effective. TIE Kinetix was excluded from the latest internal-control assessment under SEC acquisition guidance; the company was incorporating controls for the acquired business. TIE Kinetix represented less than 5% of consolidated revenue and, excluding goodwill and net intangible assets, less than 5% of consolidated assets.
Key facts for investors to verify
- Whether revenue growth and higher customer wallet share persist, and how much growth reflects acquisitions versus existing-customer expansion.
- Whether operating margins recover as personnel and stock-based compensation expenses continue to rise.
- The effect of equity-award tax benefits on future effective tax rates and GAAP earnings.
- Final TIE Kinetix purchase accounting and the cost, integration and financial impact of the Vision33 technology acquisition.
- Completion or expiration of the share-repurchase authorization and the company’s ongoing capital-allocation priorities.