SPS Commerce, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. SPS Commerce provides cloud-based supply-chain management solutions, with most revenue from recurring subscriptions. Amounts below are in millions except per-share data and percentages.
Financial performance
- Revenue: $90.1, up 21.4%. Recurring revenue was $82.8, up from $70.0; one-time revenue was $7.3, up from $4.2. Recurring revenue customers increased 9% to 33,850, and annualized average recurring revenue per customer (“wallet share”) rose 9% to $9,900.
- Profit and margins: Gross profit was $60.1, up 18.7%; gross margin declined to 66.7% from 68.3%. Operating income was $12.7, up 9.8%, with operating margin of 14.1% versus 15.5%. Net income was $10.2, up 7.2%; diluted EPS was $0.28 versus $0.26. Net margin was 11% versus 13%.
- Non-GAAP measure: Adjusted EBITDA was $25.5 versus $20.4, and Adjusted EBITDA margin was 28% versus 27%. Non-GAAP diluted income per share was $0.43 versus $0.38. These measures exclude items and are not substitutes for GAAP results.
- Cash flow: Operating cash flow was $21.6 versus $14.7. Investing activities used $4.8 versus $0.6, largely reflecting net investment purchases and capital spending. Financing provided $2.7 versus using $8.9; no shares were repurchased in Q1 2021, compared with $12.0 of repurchases in Q1 2020.
- Liquidity and debt: Cash, cash equivalents, certificates of deposit and short-term investments totaled $208.4 at March 31, 2021; net accounts receivable was $35.3. Current assets were $296.9 and current liabilities $83.4. The company reported no debt or off-balance-sheet borrowings. It said available cash, investments and operating cash flow should cover working-capital and capital-expenditure needs for at least 12 months.
- Other balance-sheet items: Total assets were $549.8, total liabilities $109.3, and stockholders’ equity $440.5. Deferred revenue totaled $48.5, including current and non-current amounts.
Material changes and management commentary
- Management said revenue growth reflected both more recurring-revenue customers and increased customer usage. Q1 marked the company’s 81st consecutive quarter of revenue growth.
- Cost of revenue rose 27.3%, faster than revenue, primarily due to higher headcount and personnel costs, stock-based compensation, and platform infrastructure depreciation. Higher intangible amortization also reflected the December 2020 Data Masons acquisition.
- Operating expenses increased 21.3%. Stock-based compensation expense rose to $6.9 from $4.3. Management attributed higher general and administrative expense in part to stock compensation, charitable donations and personnel costs.
- The Data Masons acquisition’s purchase accounting remained provisional at quarter-end. Subsequent to quarter-end, the SBA approved full forgiveness of the acquired PPP loan; SPS anticipated paying the former owners the $1.9 contingent consideration in Q2 2021.
Outlook, risks and contingencies
- The filing provides no specific revenue, earnings or margin guidance. Management described plans to grow through market penetration, higher customer usage, expanded distribution and international presence, new solutions, and selective acquisitions.
- Management cited COVID-19 and other business risks as potential factors that could cause actual results to differ materially from forward-looking statements. It expects expenditures to increase as the business expands.
- Contractual commitments included $24.9 of operating lease payments and $16.2 of purchase commitments, primarily for technology and customer relationship management services, for total commitments of $41.1.
- No material legal proceedings were reported, and the filing disclosed no material changes to the company’s previously reported risk factors. Disclosure controls were assessed as effective. The assessment of internal controls excluded Data Masons, which was being integrated; Data Masons represented approximately 6% of consolidated revenue for the quarter.
Key facts for investors to verify
- Whether recurring customer growth and wallet-share gains continue, and how much is organic versus acquisition-related.
- Whether gross and GAAP operating margins stabilize as personnel, infrastructure, amortization and stock-based compensation costs rise.
- The effect of the Data Masons acquisition, including completion of purchase accounting and payment of the $1.9 contingent consideration.
- Whether operating cash flow and the reported liquidity remain sufficient as the company invests, meets commitments and considers acquisitions or share repurchases.