SPS Commerce, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; compared with the same 2014 periods. Amounts are in millions of dollars, except per-share data and customer metrics. SPS provides cloud-based supply-chain management solutions, with most revenue from recurring subscriptions.
Financial results
| Metric | Q2 2015 | Q2 2014 | H1 2015 | H1 2014 |
|---|---|---|---|---|
| Revenue | $38.8 | $31.1 | $75.8 | $60.0 |
| Gross profit / margin | $26.5 / 68.2% | $21.5 / 69.0% | $51.9 / 68.5% | $41.2 / 68.6% |
| Operating income / margin | $1.0 / 2.6% | $1.0 / 3.3% | $1.9 / 2.6% | $1.6 / 2.7% |
| Net income | $0.65 | $0.64 | $1.24 | $1.01 |
| Diluted GAAP EPS | $0.04 | $0.04 | $0.07 | $0.06 |
| Adjusted EBITDA (non-GAAP) | $5.0 | $4.5 | $9.7 | $8.4 |
| Operating cash flow | Not separately provided | Not separately provided | $2.4 | $6.9 |
- Q2 revenue rose 24.9% and H1 revenue 26.3%. At June 30, recurring-revenue customers were up 10% year over year to 22,746; Q2 annualized average recurring revenue per customer (“wallet share”) increased 14% to $6,225. Recurring revenue was 91% of Q2 revenue and 90% of H1 revenue.
- Operating expenses grew 24.6% in Q2 and 26.3% in H1. Gross margin slipped 0.8 percentage points in Q2; operating margin declined 0.7 points. Higher headcount drove much of the expense growth, particularly in sales and marketing and research and development.
- H1 investing cash outflow was $15.1 million, including $10.0 million of marketable-security purchases and $5.1 million of capital expenditures. Cash and cash equivalents fell $9.5 million to $121.3 million. The company also held $10.0 million of non-current marketable securities.
- Working capital was $135.2 million, versus $137.6 million at year-end 2014. Total liabilities were $38.0 million; no borrowings were outstanding. A $20 million revolving credit facility matures September 30, 2016.
Outlook, risks and notable items
- Management expects customer count and wallet share to continue increasing, and expects cost of revenue, sales and marketing, research and development, and general and administrative expenses to rise in absolute dollars as the business expands. It provided no specific revenue or earnings guidance.
- Management estimated a full-year 2015 effective income tax rate of approximately 40% and said cash, cash flows from operations, and available resources should meet working-capital and capital-expenditure needs for at least 12 months.
- H1 operating cash flow decreased from $6.9 million to $2.4 million, which management attributed to working-capital movements and other operating changes. Comprehensive loss was $0.6 million for Q2 and $1.3 million for H1, primarily reflecting foreign-currency translation losses; net income remained positive.
- Foreign-currency movements, especially the Australian dollar, may affect results; the company did not hedge this exposure. Management reported no material legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls. No material off-balance-sheet arrangements were reported.
- The filing cautions that interim results are not necessarily indicative of full-year results. Management was evaluating the impact of the new revenue-recognition standard effective for annual periods beginning after December 15, 2017.
Important facts for investors to verify
- Whether customer growth and wallet-share gains continue to support recurring revenue growth.
- Whether investment in staffing and product development translates into operating leverage, given the lower reported margins.
- Drivers of the decline in operating cash flow and the level and timing of future capital spending.
- Foreign-currency exposure and the effect of stock-based compensation; H1 stock-based compensation was $3.1 million, and management reported $14.4 million of unrecognized expense.
- Non-GAAP measures are supplemental: review their reconciliations to GAAP results and the company’s stated exclusions.