SPS COMMERCE INC Q1 FY2021 earnings

SPS Commerce opened fiscal 2021 with first quarter revenue of $90.1 million, up 21.4% from $74.2 million in the first quarter of 2020. It was the 81st consecutive quarter of revenue growth for the retail cloud services provider. Net income for the quarter was $10.2 million, or $0.28 per diluted share, compared with $9.5 million, or $0.26 per diluted share, a year earlier. Operating income rose 9.8% to $12.7 million. Gross profit reached $60.1 million, up 18.7% from $50.6 million.

Margin pressure showed up in the cost lines. Gross margin slipped to 66.7% from 68.3%, a decline of 1.5 percentage points, and operating margin fell to 14.1% from 15.5%, also down 1.5 percentage points. The company tied the higher cost base to headcount growth, which lifted personnel-related costs in cost of revenues by $5.3 million and stock-based compensation by $0.7 million. Sales and marketing absorbed $1.1 million more in personnel costs, $0.6 million more in stock-based compensation and $0.9 million more in variable compensation for sales staff and referral partners. Amortization of intangible assets climbed, reflecting the Data Masons acquisition. Total operating expenses rose 21%.

Customer metrics kept moving. The count of recurring revenue customers rose 9% to 33,850 at March 31, 2021 from 31,000 a year earlier. Wallet share, the company's measure of annualized average recurring revenues per recurring revenue customer, improved 9% to $9,900 from $9,050. Recurring revenue grew 18% over the prior-year quarter. Recurring revenue from recurring revenue customers represented 92% of total revenue in the quarter, down from 94% in the first quarter of 2020.

Cash flow was a bright spot. Operating cash flow came in at $21.6 million, up 47.3% from $14.7 million. Capital expenditures were $3.3 million, down from $4.0 million. Deferred revenue, current portion, stood at $44.5 million at March 31, 2021, up 27.3% from $34.9 million a year earlier. The balance sheet carried $208.4 million in cash and cash equivalents, certificates of deposit and short-term investments. Adjusted EBITDA, a non-GAAP measure, was $25.5 million, up 25% from the prior-year quarter, and non-GAAP net income per diluted share was $0.43 against $0.38.

Guidance covers the second quarter of 2021 and the full year. Second quarter revenue is expected to be $90.5 million to $91.5 million, with non-GAAP net income per diluted share of $0.39 to $0.40 and adjusted EBITDA of $24.8 million to $25.5 million. Fully diluted weighted average shares outstanding are expected to be approximately 37.0 million. For the full year 2021, revenue is expected to be $371.1 million to $373.6 million, representing 19% to 20% growth over 2020. Non-GAAP income per diluted share is expected to be $1.65 to $1.68, and adjusted EBITDA $102.5 million to $104.0 million, representing 18% to 20% growth over 2020. The outlook assumes approximately $26.9 million of non-cash share-based compensation expense, $15.9 million of depreciation and $10.5 million of amortization.

The main risks sit where they did last year. The company points to the coronavirus pandemic, which its filings say may amplify other risk factors described in the annual report for the year ended December 31, 2020. Income tax expense increased, largely because discrete tax benefits from stock activity were smaller and pre-tax income was higher, and the company expects its annual effective tax rate to fluctuate as stock awards settle or are exercised. Other expense, net decreased, primarily on better investment performance and smaller foreign currency exchange losses. Long-term commitments remain modest: contractual obligations total $41.1 million, including $24.9 million of operating lease obligations and $16.2 million of purchase commitments, and management says existing cash and cash flows from operations should cover working capital and capital expenditure needs for at least the next twelve months.