SPS Commerce, Inc. — Q2 2022 Form 10-Q
Business context and reporting period
Cloud-based supply-chain management services provider. This unaudited quarterly report covers the three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in millions of dollars except per-share data and percentages.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $109.2 | $94.5 | $214.4 | $184.6 |
| Gross profit / margin | $71.6 / 65.6% | $62.8 / 66.4% | $141.5 / 66.0% | $122.9 / 66.6% |
| Operating income / margin | $16.0 / 14.6% | $13.5 / 14.3% | $32.5 / 15.2% | $26.2 / 14.2% |
| Net income / margin | $10.8 / 9.8% | $10.2 / 10.8% | $23.4 / 10.9% | $20.4 / 11.0% |
| Diluted GAAP EPS | $0.29 | $0.28 | $0.63 | $0.55 |
| Adjusted EBITDA / margin (non-GAAP) | $30.9 / 28% | $27.3 / 29% | $62.6 / 29% | $52.8 / 29% |
Q2 revenue rose 15.5%; first-half revenue rose 16.1%. Recurring revenue increased 16% in Q2 to $101.2 million and 17% in the first half to $198.7 million, representing 93% of total revenue in both periods. Fulfillment, analytics, and other recurring services made up the recurring total; one-time revenue was $8.0 million in Q2. Management attributed growth to more recurring customers and higher customer spending: customer count rose 12% year over year to 38,650, while wallet share rose 4% to $10,550 for Q2.
First-half operating cash flow was $36.8 million versus $54.7 million in 2021. Investing used $5.3 million and financing used $26.2 million, including $30.2 million of share repurchases. Cash and cash equivalents were $212.7 million at June 30; cash, cash equivalents, and short-term investments totaled $259.2 million. The company reported no debt or off-balance-sheet borrowing arrangements. Current assets were $365.5 million and current liabilities $101.2 million.
Material changes and notable items
- Growth came with higher costs: first-half cost of revenue rose 18.2%, faster than revenue, and gross margin declined 0.6 percentage points to 66.0%. Research and development expense rose 25.7%, primarily reflecting increased headcount and related costs.
- First-half operating income increased 24.0%, but net income increased 14.6%; higher income-tax expense and foreign-exchange losses contributed to the difference. Q2 other expense was $1.3 million, mainly from realized foreign-currency losses.
- Stock-based compensation was $17.7 million in the first half, up from $14.4 million. Adjusted EBITDA and non-GAAP EPS exclude specified items and should be considered alongside GAAP results.
- Repurchased 255,196 shares for $30.2 million in the first half. A new $50 million repurchase authorization was approved July 26, effective August 26, 2022; it replaces the existing program.
- After quarter-end, SPS acquired GCommerce, an automotive-aftermarket EDI provider, on July 19 for approximately $45 million in cash, subject to post-closing adjustments.
Outlook, risks, and contingencies
The filing gives no quantified revenue or earnings guidance. Management expects recurring customer count and wallet share to continue increasing and says cash, investments, and operating cash flow should cover working-capital and capital needs for at least 12 months. It anticipates continued spending as the business expands. The company reported no material change in previously disclosed risk factors and no material legal proceedings. Foreign-exchange movements are a risk; the company reported no currency hedging and attributed increased other expense partly to unfavorable exchange-rate changes. Management stated inflation had not materially affected the business and was not expected to do so in the foreseeable future.
Disclosure controls were assessed as effective. The internal-control assessment excluded the recently acquired Genius Central business, which represented approximately 1% of consolidated revenue; integration of its controls was underway. The filing says there were no material changes in internal control during the quarter.
Investor verification points
- Assess whether customer growth and wallet-share gains persist, and monitor recurring revenue concentration and cancellation terms.
- Track gross-margin pressure, hiring-related costs, R&D investment, stock-based compensation, and the gap between GAAP and non-GAAP performance.
- Review operating cash-flow conversion and working-capital movements, particularly accrued compensation and deferred revenue.
- Verify GCommerce purchase-price adjustments, integration, and subsequent acquisition-related financial effects.
- Monitor share repurchases, foreign-currency exposure, and progress incorporating Genius Central into internal-control assessments.